Why You Probably Won’t Survive The Next Bear Market

By Lawrence Hamtil of Fortune Financial Advisors

The coming of a bear market is inevitable, but it is doubtful that you are prepared for it. The reason, I believe, is that the bear market you envision is not likely to be the one that occurs at all. Many bear markets are cyclical, and can occur with a sudden crash only to recover almost as quickly, as in October of 1987. Others can be decades-long deflationary grinds that demoralize even the hardiest of bulls, and that can make an entire generation swear off equity investing, such as the current market in Japan.

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Some bear markets are stealthier, and carry the appearance of a bull, but are actually vicious bears. That is because inflation consumes all of the nominal returns, leaving investors with nothing for themselves. Such was the case with the S&P 500 from January of 1970 through 1980, when the S&P 500 returned about 8% nominally, but virtually nothing after inflation.

When the next bear market does occur – whatever form it takes – and you do find yourself ill prepared, you can blame these poor investment decisions:

Tired of the negligible returns on cash, you raided your savings account to buy more shares of your Vanguard index fund, so when the market crash did occur, you were forced to sell at inopportune prices, therefore locking in steep losses.

Worried about the strong dollar and the recent crash it caused in oil prices, you sold your energy shares and hedged your foreign equities, leaving you with an equity portfolio entirely dependent on dollar strength for continued performance, leaving you unhedged against an unexpected dollar decline and a subsequent rise in inflation.

Fearing inflation and rising rates, you sold all of your bond positions, so when a bout of Japanese-style deflation set in, your portfolio got crushed.

After years of watching the S&P 500 outperform the rest of the global marketplace, you cashed out of your foreign and emerging market equities to go all-in on US stocks, just in time for the cycle to turn.