It's fair to say that 2022 was an overwhelmingly challenging year for investors. All major indexes took a tumble last year as factors like inflation, recession fears, and the Ukraine conflict took hold. And 2023 is starting out with a lot of investors feeling iffy about a near-term recovery.
Now the good news is that bear markets don't last forever, so at some point in time, the stock market is likely to rebound. But what if that doesn't happen in 2023?
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Investors could be in for an extended bout of rockiness
A number of the factors that caused intense stock market volatility in 2022 are still at play in 2023. Inflation is still at a much higher level than normal, the Ukraine conflict hasn't resolved, and economists are still sounding warnings that conditions have the potential to deteriorate, especially if the Federal Reserve maintains its aggressive stance on interest rate hikes.
To put it another way, investors are not guaranteed to emerge from a bear market in 2023. And that's not an easy thing to hear. But it doesn't mean you need to panic, either.
You can't rush a stock market recovery
Data from Hartford Funds indicates that the average length of a bear market is 289 days. And that may seem like a not-so-comforting number at first.
But do keep in mind that the average length of a bull market, by contrast, is 991 days. So while things might look bleak for a while, the market will recover eventually.
What should you do while you wait for that to happen? It's simple -- keep investing. Continue buying stocks in your brokerage account, and keep investing in your IRA or 401(k) plan. In fact, now's actually a good time to invest, namely because you can scoop up quality assets at a discount.
Many investors struggle to invest during bull markets because they worry about overpaying for stocks. Right now, that's still something to be mindful of, but it may be less likely due to stock values being down across the board.
That said, a volatile market can be a tricky one to invest in, so a strategy you may want to employ is dollar-cost averaging. What you're basically doing here is committing to invest a certain amount of money in certain assets at predetermined periods of time.
It's a better alternative to attempting to time the market, which is something even the most seasoned investors often struggle to get right. And also, don't hesitate to fall back on broad market exchange-traded funds (ETFs) if you're struggling to choose individual stocks for your portfolio.
All told, it's not clear when the stock market will manage to bust out of its current slump. But rather than worry about that, focus on budgeting your money carefully so you're able to continue investing, and keep tabs on your portfolio to make sure it's well diversified and age-appropriate.
Bear markets don't last forever. Keep telling yourself that, and you'll put yourself in the best position to get through an extended one.
