Should We Buy Stocks In A Bear Market?

Here’s a question I’m getting from those with long term outlooks during this COVID-19 crisis: Is now a good time to buy stocks?

As of noon on March 25th, Canadian stocks were down 25% over the past month. If that doesn’t scream ‘buy’ I’m not sure what does. But we don’t live in a vacuum.

it’s really hard to say ‘buy’ right now. Every time there is a huge correction or bear (meaning a down) market the news is awful. Remember 2008? That’s why the markets are down.

What I’m saying now, is what I always say. We don’t know what’s going to happen next. In fact, you should run away from anyone who says they do know what’s going to happen next. Even some of the top strategists withdrew their earnings targets for the year in the last couple of days (so the most educated and informed are admitting ‘they don’t know’ – that’s refreshingly rare).

Honestly, the speed of the bounce-back may take weeks, months, or even years. On historic terms, a bear market is generally a good time to buy, but we just don’t know how low a bear market can go.

And if we think we’re buying low, and markets drop another 20% we’ll be disappointed.

So, what I recommend for investors with long term timelines is this: Dollar-cost average into this market. If you usually buy $200/month into your RRSP keep doing that. If you’ve got $10,000 to invest, consider buying $2,000/month each month over the next 5 months. This is a bear market – and it is likely a buying opportunity – just don’t put all your eggs into one basket, (or buy it all on one day). This will spread your buying risk out.

And remember selling is the worst thing you can do in a bear market. This is why seniors should always have significant holdings in cash and bonds. Locking in losses means you’ve actually realized your losses. And then you’ll miss the bounce.

This is why “investing” should only be done with the money that you don’t need for at least 5 years.

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