This Is Suze Orman's Best Advice for Investing in a Bear Market
- Suze Orman has some wise words for investors during this bear market.
- She suggests remaining calm so you don't lock in losses.
- Her advice is backed up by data on the market's past performance.
Don't make any investment moves until you've read her advice.
When stock prices fall 20% off their recent high, it's typically considered a bear market. This has happened recently, and many investors aren't sure of the best way to proceed with the funds in their brokerage accounts.
Fortunately, finance expert Suze Orman has some advice on the best thing to do when the market is experiencing a major downturn. Here's what she suggests.
This is your best option in a bear market
Orman warned her followers on LinkedIn that "when you open your second quarter investment statements it is not going to be a pretty picture," because of the fact that the market has fallen into a bear market.
But she had a simple suggestion on how to respond to current market conditions even if your brokerage account statement upsets you.
"My best advice for what to do in the midst of this bear market: stay calm," Orman said. "I know staying calm is not exactly high on your list right now. When you see your account values falling it's natural to think it might be better to sell everything and stop the bleeding. But that would be a big mistake. If you get out now, you will have just set yourself up for a huge risk: being on the investing sidelines when the markets swing up."
Orman made clear that it's impossible to tell exactly when stock prices will hit rock bottom and when the market will rebound. And she said that in light of the fact that no one can predict exactly what stock prices are going to do in the near term, the best thing to do is to just hold on and stay invested in order to maximize your chances of your assets performing well over the long term. If you don't do this, you risk missing the stock market rally that inevitably follows a downturn, and you could end up much worse off in the end.
Is Orman right?
Orman's advice about what to do with your investments is great -- and it's backed up by solid data. As she explained, "Over the past 20 years, the S&P 500 has had a 9.5% annualized gain. But if you missed just the 10 best trading days in that 20-year stretch your annualized gain would have been just 5.3%." And, if you had missed the 30 best days, you would have earned less than 1% average annual returns.
You cannot afford to take the chance of missing out on those days when things turn around, especially because as Orman pointed out, "What's even crazier is that the best days have a habit of coming right on the heels of the worst days."
So, if you are disappointed with how your investments have done over the past few months, you should seriously consider heeding her advice and taking a look at the past performance of the market yourself if you need more convincing. If you have made smart investments, it's inevitable you'll experience some periods when they go down due to overall market conditions -- but if you simply hold on, you should recover any losses and then some.
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