The Benefits of a Bear Market

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As I write these words at the market close on March 11, 2020 it seems a bear may be upon us.  Those gnashing teeth, those grisly (bad pun) paws ripping that undefended flesh right down to the bone.  Blood in the streets.  Coronavirus in the wind.  A worldwide pandemic (wow, that’s the first in my life).

Panic!  Panic!  Run for the hills.


I’m actually kind of smiling.

Am I Insane?

With blood in the streets, it's time to remain calm and think about the benefits of a bear market. Yes, there are benefits! Click To Tweet

The Benefits of a Bear Market

Sure, my portfolio’s gotten crushed since December 31st.  Since I’m writing this post, I just HAD to look.  Ugly.  Ugly.  As I’m writing this post, my Net Worth is down $213,700 for the year (thanks, Personal Capital, for making it too dang easy to check my net worth).   Ouch.  That’s some serious money.

And yet, I’m surprisingly relaxed.  Almost feeling a bit giddy.  Hard to explain, but I’m pleased to report I’m fairing quite well.  In fact, I just bought some more stocks today.  But…I’m getting ahead of myself. More on that in a moment….

I’m actually enjoying the ride.   After all, I haven’t really LOST that money unless I sell.  And I’m not selling.  Quite the opposite.  Relax, people.  You’re not rookies.  It’s time to act like the professional money managers you all are.  After all, you’re in the small percentage of folks who read financial blogs, right?  Take a step back, evaluate, learn, apply, and move on.

We don’t get to see the bear very often, and he’s a fascinating creature.

I love this stuff, actually.  Bears live in these woods we all call home, and we should be fascinated by the rare close encounter we’re experiencing today.  A real-life case study of what a bear market feels like, and we’re all living it together.  Fun, right?

Come on, this isn’t your first time.  You remember 2008, don’t you?  Now THAT was a bear.  Wow. And yet, we all survived.  Thrived, even.

You knew this beast was coming out of the woods, didn’t you?  I hope you were prepared.  My 6 Steps To Avoid The Looming Bear Market may have been a bit premature, but the point was that we all knew this was coming, and we should have been taking steps to prepare during the rip-roaring markets we’ve enjoyed for the past decade.  He’s been sleeping longer than usual this winter, and he was a bit late coming out of his hibernation.

But…he’s always been there.

Hiding.  Waiting.

Now, it appears he’s arrived.  No surprise, really.  This is why we’ve been preparing.

How Can I Be So Relaxed In the Midst of a Bear Mauling?

Maybe I’m really naive.  Maybe I’m just eternally optimistic.  Maybe I’m just an idiot.

Whatever it is, I’m relaxed.  I’ve been preparing for this, and I’m not the least bit surprised that the bear’s gotten hungry during his long winter’s sleep.  I’ve got three years of cash safely tucked away in my Bucket Strategy, and another 5 years of bonds and other stuff I could sell before I’d ever have to sell any stocks to feed my family.  Some would argue that preserving 3 years of liquidity in cash carries a large opportunity cost given today’s low-interest rate environment.  I say, let them eat cake.  This is precisely why I have it, and I’m amazingly relaxed.  A minor opportunity cost I’m more than happy to bear (another bad pun).

In reality, I’m a perpetual optimist, and I fully expect all of this will pass in time.  That bear will go back to hide somewhere deep in the woods, and we’ll all return to our otherwise routine lives.  Live it up, enjoy the experience.

This is fun, right?

I don’t think the bear’s teeth can kill me through the kevlar, though no one knows precisely what the future holds.  That’s ok, it’s no excuse to panic.  Stay calm and look for opportunities.

Warren Buffet’s a pretty smart guy, and I suspect he’s pretty calm right now, too.  Buy when others are anxious, right?  So, let’s look at some of the benefits we may be able to reap while Mr. Bear is storming through the forest.

Benefits of a Bear Market #1:  Time to buy some stocks?

I’ve always believed in making small, incremental adjustments when the market makes big moves.  I don’t do anything to rock my overall investment portfolio, but I keep a very close eye on asset allocation and follow a pre-determined course.  We’re not entirely “timing” the market if we take the opportunity to buy small tranches on major down days, or sell small tranches on big up days.  I was selling a bit at the end of last year since stocks had a huge run in 2019.  I’ve got a pretty decent bucket of dry powder, and it’s a good time to put some of it to work.  It’s not market timing if the moves are small, but rather an ongoing asset rebalancing approach.  In reality, our asset allocation is moving, and small corrections along the way seem to be a reasonable approach.

I’ve been buying tranches of 1-2% of my portfolio on any market move exceeding 5%.  For the first 5% down, I bought 1%.  For the second 5% move down, I bought another 1%.  Today, with the market down another 5% (making it an 18% correction YTD), I bought another 2%.  I’ve sold some bonds to make the purchases and pulled a bit of excess cash into the market. I haven’t touched a single penny of my Bucket 1 cash, and I won’t.  Gees, you don’t think I’m an idiot, do you?

The further it drops, the larger my % moves will likely be.  I’ll never get above ~65% equity (I was at 46% stocks on Dec 31, as I shared in my Year-End financial update, so I’d been planning to bump up my equity a bit, anyway), but it seems a decent time to gradually buy into the dips.

Don’t time the market, but have a pre-determined plan for how you’ll handle market volatility.  Build up some dry powder when the market is hot, and be patient.  Keep within the pre-determined guardrails for your asset allocation.  Then, stick with your plan.  If your plan is a more simplified, “Don’t Sell”, then don’t sell.  A sound strategy, and probably best for most people.  But…what do I know?  I’m just an idiot, right?  😉

Benefits of a Bear Market #2:  Playing offense in an over-valued market

I’ve read many forecasts which call for a below-average return in the stock market over the next decade or so, and I tend to agree.  The market valuations have been high, and things have a pattern of reverting to the mean.  What does that look like, in practice?  

Likely, it means a lot of volatility.  Some big down moves, some big up moves, but a slower and more gradual overall move up than we’ve experienced in the past decade.

If that’s a likely market environment, what should we do?  There’s certainly nothing wrong with choosing to “let it ride”, and just sit tight while the market gyrates.  That’s a solid strategy, and probably best for most people (especially those of you who are still working, and dollar-cost averaging with each paycheck).  Make sure you have your Bucket System in place to avoid selling in a downturn, and you’ll be fine over time.

For me, I like to take a bit more of an offensive approach.  I won’t do anything stupid, and I don’t consider myself a market timer, but I’m willing to play around within a range of +/- 10% in my asset allocation to stocks.  So, I ended the year at 46% stocks because I felt things were a bit over-heated.  I may grow the allocation closer to 65% if this bear continues.  A range of 46 – 65% stocks is a reasonable range for my risk tolerance, and I’m always keeping a strong defensive position of cash.

I like the way J. David Stein talks about that approach in Money For The Rest of Us, and encourage you to read the book if you’d like more insight into why this strategy is not considered market timing.  I suspect the fact that I recently read that book has influenced my thinking on my current approach.  What matters is that I’ve thought about it, and I’m sticking to a broader strategy instead of reacting in the moment.

Benefits of a Bear Market #3:  If you’re still working, this is the best thing that could happen for you.

The last thing you want to do when you’re working is buy high, buy higher, buy higher, only to have the market collapse shortly after you’ve retired and aren’t buying anymore.  Reversion to the mean, remember?

Back when I was working in 2008, I told everyone I worked with that “this is the best thing that could happen to us”.  I increased my savings rate in the midst of the ’08-’09 bear market, the discounts were too good to pass up.  If you’re dollar-cost averaging with every paycheck, count your blessings.  You’re buying more shares every month, and everything will be fine with the long time horizon you’re facing.

Celebrate – this is the best news you’ve received this year!  Really.

Benefits of a Bear Market #4:  A Test of your Risk Tolerance

If you’re losing sleep due to that bear tearing at your door, you have too much of your allocation in stocks.  Sure, you THOUGHT you liked taking risk when the market was heading up, but now you’re not so confident.  Good for you, you’ve learned something about your risk tolerance.  Hang in there, this thing will recover at some point. 

The important thing is to remember how you’re feeling now, and make the appropriate adjustments after things rebound.  If you were at 75% equity before this bear came out of the woods, plan on moving yourself to ~50 – 60% in time.  I’m at 46%, and I’m not in the least bit worried.  Your asset allocation must match your risk profile for you to have a truly great retirement, and now you know if you’ve been too aggressive.  Thank the bear, he’s taught you something about yourself.

Benefits of a Bear Market #5:  It’s time to do a Roth Conversion!

Credit for today’s post goes to John $, who sent me the following email earlier today:

Hey Fritz,
Enjoy your blog.  I just want to mention that since the markets are crashing, it is actually a good time to roll over a regular IRA to a Roth IRA.  Since most of our holdings are beaten down you can roll them over at a lower tax cost now, and then when they recover (hopefully) in the Roth, you would have paid less tax to roll them.
Pass it along to the rest of the crew.
John $

Of course John is correct, and his advice is sound. If you’re pursuing a Roth Conversion Strategy, it’s time to think seriously about executing your 2020 conversion.  Here’s how to do it.  I decided to go a step further with John’s thought and spent some time thinking of other benefits of a bear market.  But…the seed was planted with that email.  Thanks, John!


I wasn’t planning on writing this post today.  For the past week, I’ve been working on a real doozy that I’m planning on posting next week.  However, John’s email planted the seed, and this writer couldn’t let it stagnate in dry ground.  I decided to add some water.

I read John’s email at 3:31 pm on Wednesday, 3/11, and by 5:05 pm this post was written.  I think I’ll send it as a “surprise” second post on Thursday.   Since you’re reading this, I guess I executed on that plan.

Somehow, it just seemed right to blast off a quick one on the topic of the bear market we’re all experiencing.  I may not have thought it all the way through like I typically do with my posts, but it’s worth remembering that every crisis has both positives and negatives.  It’s worth the risk of sending out a less “digested” post than normal, and I ask your forgiveness if I’ve missed the market.  However, people seem to be a bit overly focused on the negatives, and I felt it was right to shoot out a quick one.  At least you know what’s on my mind, within (literally) hours of me even having the thought. 

It’s time to take a breath and look for something good in the world around us.  Look hard enough, and you’ll find that even a bear market can bring benefits.  

As long as he doesn’t devour you first.  Pesky bears…

PS – Oh yeah, I also have a little “fun money” account where I do really idiotic trades.  I’ve been selling some put options during the bear, too.  Another of the benefits of a bear market?  The volatility generates big option premiums! Yeah, I kinda like to play around with options, but only to the extent that I could lose it all and it wouldn’t impact my retirement. We’ve all go to have our hobbies, right?  I’d suggest you don’t follow my example… 

Your Turn:  What other benefits of a bear market can you think of?  Am I an idiot?   How are you reacting to the market?  Let’s chat…


  1. I’m with you dude, I’m just sticking to my strategy. Having gone through the crashes of 2000 and 2008 this isn’t new for me, although being caused by a pandemic I guess it is in that way. And since I’m still working half-time at my W2 job I will continue to plow money into my 401k as always, no changes.

  2. Staying the course. I have almost two years of cash available, and a CD ladder that would cover us for five years. Working part-time and still putting 10% into my 401K. I’m not selling any equities. Still hard to watch your investments drop by $ 50K in one day.

    1. You’re golden. As for the “hard to watch” part, just look away – you’re dollar cost averaging into the market and don’t have to worry, that bear will go back into hiding before you ever need to touch those stocks!

  3. Great timing on the post – loved it and needed to hear it – you won’t hear this on the news – lol. I’m staying the course – increasing contributions and avoiding lifestyle creep. As I’m about 8-10 years from retirement I welcome this bear and thanks for the reminder! I’m amazed that people think the market only goes up ! Never has and never will. Your post ought to make the WSJ. Take care Fritz

  4. That is a good post.
    The cash cushion and other alternatives certainly help with the shut eye.
    In the UK the main index – FTSE 100 – is currently less than 80% of the level it was at in 2000 which seems to me to indicate it is a raging buy.
    One weird positive for me is because we have a really strange and stupid tax in the UK whereby if your pension pot is over a certain amount on the day you start taking pension the Government take a nice big bite of it. At year end I was just over the threshold and now I am just under it. I start taking my pension in April which I expect before things start to recover so I should get to avoid the tax.

    1. “..which seems to me to indicate it is a raging buy…”

      Careful with that logic. I thought that in 2008, only to watch the market drop another 30%…these bears can come out of the woods for a surprisingly long time. And, thanks for adding a new International twist to the benefits of a bear market – keeping those grubby politicians hands away from your pension! #BearMarketForTheWin

      1. And really stupid as it just encourages people to retire early and/or go part time. Good for me but not so great for the economy.

        You mentioned you were moving from 46% to 65%. I assume you do not include your pension scheme in those numbers? I always think of a pension as a bond and value it as 25 times the current payment if it is indexed. That would make your allocation pretty conservative which given the last couple of weeks is a good thing!

        1. PJ, I don’t include my pension in my calculations. Rather, my focus is on “the gap” I need to cover between pension and spending. I view my Sustainable Withdrawal Rate only from the perspective of “Income Need” as a % of “Spendable Assets”. I’ll view Social Security the same way, when I claim it at age 70. I’ve nothing wrong with viewing the NPV of the pension as an asset, but in my mind it just makes a complicated equation more complicated, with no real benefit to my investing strategy. What matters if whether my investments are appropriately allocated to cover my “net” spending needs. Point taken, however, and I’ve nothing wrong with the approach you use. “Personal” finance, right!?

  5. Hi Fritz – I’m an board reader who recently discovered your blog. Thanks. It’s great to have a second place to gather important info. I like the way your essays can deal with an issue in a more comprehensive way than forum posts.
    My investments are almost all at Vanguard. I’m turning 65 in May and just barely realized that my Roth conversion in 2019 put me over the IRMMA threshhold. I was only 64, so the effect isn’t immediate. But due to the two-year look back for IRMMA surcharges, I’m afraid I may have to pay the surcharge for 2021 taxes. Do you know, if I keep my MAGI below the threshhold in 2020 and 2021, if I will have to pay the surcharge?
    Best – L.
    P.S. Stop calling yourself an idiot. You aren’t and it demeans your posts.

    1. LEM, glad to have you on board. I get a ton of traffic from, even though I don’t have the time to visit there very much. Glad to see others sharing my stuff there, it’s a great site. As for your IRMMA question, I’m afraid that’s an aread I’ve not yet studied in any detail, and would be uncomfortable providing advice. I do know there’s a 2-year lookback, so suspect you may have an issue. It certainly warrants further research. As for calling myself an idiot, what good is a man if he can’t poke a bit of fun at himself? Wink. Thanks for the advice, actually. I hope folks interpret it in the manner it was intended. Thanks for stopping by.

  6. I couldn’t agree more with your game plan and real-life bear analogy. I love traveling to our National Parks. Whenever we see bears, I think it’s a gift and stay calm (my traveling buddy on the other hand says she will pee in her pants). Ha! Talk about risk tolerance differences. Stay the course and take advantage of opportunities, that’s my motto. Or, stay out of the woods. Thanks again for your voice of reason., Fritz.

  7. Love the post, very much “on time and on target” as we have all come to expect. Yes, been through this before and in a small way wish I was still working so I could pile it on and buy .. buy … buy but I am too happy to be retired that I won’t go back to work. Instead, I’ll do the Roth conversions as you suggested and try my hand a little at selling some put options, and of course we have a bucket thats big and fat (thank you for that suggestion as well) so probably will buy some as well. While, I like to see the market go up, I do like to see the bear feast now and again. As an FYI – I stared to count the actions I have taken due to your blog and decided to stop when I hit 10 🙂 . Thank you for sharing your insight, it is appreciated.

    1. Only 10? You shouldn’t have stopped counting. Wink.

      On a serious note, it pleases me beyond words to know that my work on this little passion project is truly making a difference in people’s lives. Especially when those people happen to be great friends, like you! Sorry your Camino trek is on hold, wasn’t meant to be. 🙁 If you want to chat about options, give me a call. Always enjoy our chats.

  8. 100% agree. I wouldn’t say I get “giddy” as I am FI at 58 and living on savings/investment income. I’m probably down $300,000 + today’s meltdown but like you, have 2+ years of cash + a ton of bonds. I dumped all of my dry powder into equities over the last couple of weeks. A bit premature, but you don’t know till it bottoms. Do not panic! Stick with the long term plan and enjoy the ride. On another note, I haven’t spoken to ANYONE who is selling. They’re all either buying on the swings or hanging tight. That’s the only aggravating part of these large sell offs. I’m unclear on who is initiating them and fueling them. I don’t want to be a conspiracy theorist, but I feel like some unknown sources are intentionally tanking the market to change US sentiment before the November election. Regardless, I’m good and your newsletter is perfect timing to confirm my sentiment. I just wish I had more dry powder!

    1. “I dumped all of my dry powder into equities over the last couple of weeks. A bit premature…”

      I suffered that same fate in 2008, and learned from the experience. It’s easy to get excited after a long bull and view (relatively) small corrections as a bigger buying opportunity than they really are. It was because of 2008 that I developed my “1% buy for every 5% correction” approach. That said, even buying early worked out fine after the ’08 bear, and I suspect the same will be true this time around.

  9. Excellent post and thank you for being a voice of reason in the midst of so many cries of “the sky is falling.” Just shared your post on the Retire With Money Facebook page, and I can’t wait to see what your upcoming doozy is all about. Now if I could just book those travel plans I was planning to have in place soon….

    1. Suzette, thanks so much for sharing my post on Retire With Money. That’s a great group, I’m also a subscriber to Elizabeth O’Brien’s excellent weekly email from the same group. The “doozy” isn’t anything you probably don’t already know, but it turned out to be a 3,000 word (epic?) post on 10 ways to ensure you have enough money to retire. Hope you enjoy it!

  10. Mathematically its not right to state “it is actually a good time to roll over a regular IRA to a Roth IRA”. I did some math, and the net effect if same whether you roll over in bear market or bull market or keep it as regulat IRA.

    Here is a quick version:
    Initial Value of portfolio = 100
    Bear market hits and value drops by 50%: so the current IRA is = 50

    Conversion of this to Roth and tax rate is assumed to be @30%: So tax is 15; and $35 is converted to Roth.

    Lets assume the market recovers by 100% in a few years: 35 Roth becomes $70

    But if you didnt convert to Roth, then the 50 becomes 100; and now you pay 30% tax and the net is $70.

    So whether you convert to Roth or not, it doesn’t have different effect in net money you can enjoy.

    1. A Roth conversion only makes dollar sense (in a bear or a bull market) if one expects future taxes to be higher than current taxes. Most doing a conversion are filling a 15 or 22% bracket, betting rates will be higher in future. Current law says they will be in 2025.

      Even if tax rates are the same, a conversion may be desired to tax diversify or to pass along tax free inheritance.

      1. Another benefit to doing Roth conversions before one starts drawing Social Security is so you can keep your taxable income below the threshold at which SS becomes taxable, once you start taking it. That’s why i will be doing those conversions between now and age 70 – which is when I plan on beginning SS benefits. It also will reduce my RMDs, another way I have of controlling my taxable income.

        I did a lot of playing around with an online tax calculator to determine this was the best strategy for me.

        1. Excellent planning. I’ve been collecting SS as a widower for 6 years. Every nickel that I’d put into a Roth conversion would not only be taxed by IRS and state, but it also makes more of my SS taxable. (Switching to my own SS at age 70 this coming November) Not sure if this is the best strategy, because my increased SS and age 72 RMDs are going to boost me into the 22% bracket on the excess over what the 12%/22% cutoff is.

    2. A few comments, though it merits an entire post. IRA withdrawals are taxed at the marginal tax rate, so any growth there comes at a high price. Selling when the IRA has declined reduces the tax burden, since you can get more shares out with the same dollar conversion. When the market rebounds, you get the gain tax free in your Roth. Also, I never use the IRA money to pay the tax, but rather use after-tax liquid cash to cover the tax burden, so the $50 in the ROTH becomes $100, tax free. Had I kept it in the IRA, the $50 would become $100, and I’d pay $30 in taxes (at your assumed 30% tax rate) vs. the $15 I’d pay if I converted it to the Roth after the bear. Also, I sincerely believe tax rates will be higher in the future than they are under the current tax plan, which I wrote about in “The New Tax Law Loophole That Benefits Retirees”. Also, many folks run the risk of RMD’s kicking them into a higher marginal tax bracket, which can be avoided if we use the “topping off” strategy each year before age 72 (which I wrote about here). Each of us have to make our own decisions, but I stand by my conviction that it’s best to do Roth conversion in a bear market, if possible.

  11. the best line to me was about sticking to your strategy. we have a set target asset allocation like yours even though we’re still working some. i “almost” sold some stock when my individual names were up 16% about a month ago to raise cash and rebalance. i didn’t do it because i was greedy with the up-trend and that is this month’s lesson. i’ve also noticed it takes a huge absolute move to move asset allocations by 1-2%. that surprised me some and we’ll be deploying cash soon with the 20% move down. cash is still king.

  12. Glad to know you are not running around with your hair (such that it is) on fire. Turning off the TV news is a good idea.

    With a 70% stock allocation, our hit has been hard. As a just retired guy, it demonstrates sequence of return risk is real. Good news is our cash buckets were fully filled mid February and we planned our 3.5% on a baseline that was lower than our account – and just about the account we have now, so no panic.

    Our panic is more about the house sell. We sure hope our future buyers have their down payment in cash and don’t work in the airline industry!

    1. You’re assuming I have hair…..

      Good luck with the house sale. I remember that concern when ours was on the market. I can imagine it’s pretty stressful having on the market in the midst of that bear walking around in the yard. He scares off those buyers, pesky critter.

  13. Hey Fritz,

    When you said, 3x expenses in cash, 5x in bonds, do you meant, the rest in equity? If you saved 30x expenses, then 22:8 = 73:27 is very heavy in stocks IMHO for someone retired or in pre-retirement. of course you have pensions and that doesn’t apply to most of us.


    1. Zac, you’re a perceptive guy. I went back after seeing your comment to pull my actual asset allocation on 12/31/19, I had 49% stock, 30% bonds, 15% cash and 6% in Alternatives. My max stock tolerance is ~65%, and I’d only let it get to that level if we have a very long sustained bear market and I continue my “1% buy for each 5% downturn” all the way down. (1% per 5% = a 10% shift in a 50% correction).

  14. Fritz, I happy for you and your family that got the retirement roll going early enough to enjoy the coming rollercoaster ride. The timing of this BEAR means that I need to embrace the OMY (One More Year) strategy I’ve been trying to talk myself into or out of. It also means that I will hold off doing Roth conversions from my 401k as I don’t want to lock in immediate market losses. I am however, eyeing some attractive discounts on good dividend paying stocks that would be nice to pick up and hold within my Roth. With the confluence of Covid-19 and energy (BIG OIL) crashing, we are in for a bumpy ride, so caution is warranted for those of us on the cusp of early retirement in case this bear decides to take up a longer term residency.

    1. Lane, as you likely know, I also “embraced the OMY” and have no regrets. I suspect many folks who were on the cusp of retirement are considering the same. Reasonable approach until that pesky bear goes back in the woods. Caution is always a good approach when it comes to making the very serious decision of when to retire. Best of luck on your journey, sorry it’s taking longer than planned.

    2. “I will hold off doing Roth conversions from my 401k as I don’t want to lock in immediate market losses.” Couldn’t you avoid this “lock in” by purchasing the same stock or fund in your Roth that you convert out of your 401k? Or am I missing something here? I was thinking this would be a good time to do a Roth conversion from my 403b. Thanks for your response.

      1. Joann, I’ll let Lane answer himself if he sees this, but I do agree with your logic. If your pre-tax 401(k) is at a lower share price when you convert, there will more shares converted for the same amount of taxable income (conversion counts as income). Then, the rebound would come in the tax-free Roth, which should reduce the overall tax burden compared to having the rebound occur in 401(k), which would be taxed when converted at a later date. I do think it’s a good time to consider a Roth conversion if you have access to your 403b. In Lane’s case, perhaps he doesn’t have access since he’s choosing to work OMY.

  15. Great read Fritz. I’m 60/40 and am 2 years from retirement. Thanks to PC – I’m down $400k and that was before today! I keep reminding myself it’s only a paper loss and nothing is truly lost until selling which I won’t. I do have plenty on the liquid side to keep me afloat for 5 years, so I know this too shall pass. That said, your article has compelled me to raise my 401k contribution from 12 to 30%. I’ll also look at Roth conversion. Bear markets do present opportunities! Thanks again.

    1. Good strategy to raise the contribution level, though I’d encourage you to also make sure you’re stuffing Bucket 1 full with fresh cash, if necessary, prior to Day 1. Since you have “plenty on the liquid side”, increasing your 401(k) is an entirely reasonable strategy at this stage in the game.

  16. Fritz, while you were writing this post I was using money from a settlement account to buy the total market index. Like you I have been twitching to buy stocks “on sale”.

    I have at least 3 years’ expenses in cash, so while it is never fun to see one’s net worth go down, it’s only a paper loss if I don’t sell anything. And I’m still working half time and maxing the 401K, which I switched to invest 100% in equities earlier in March as this whole COVID-19 thing was heating up.

    For the record, my portfolio has been too conservative for the past 3 years, so my going whole hog into equities is as much about rebalancing as it is being piggish about stocks being on sale and market timing. I’d stayed with conservative because I had retired at the end of 2016 and had big SORR worries. But then I started working p/t and have added to retirement savings and have not taken any distributions yet. I also procrastinated about rebalancing even though I knew I needed to do it, and it took a big market drop like this to goad me into doing something about that.

    1. Lynne, I think a lot of us (based on feedback from my readers) have been “too conservative”, seems a lot of folks have a lot of dry powder on hand. You’re smart in using this market to start shooting some of that powder out of your rifle, it’s for exactly these times that we keep it on hand. In hindsite, you’re fortunate that you “procrastinated about rebalancing”, sometimes it’s better to be lucky than good!

    2. That’s was exactly my approach also Lynn! Instead of procrastination, I would term it as an intentionally delayed rebalance waiting for a better opportunity. In my guest post back in December, I was somewhere around 50/50 stocks to (TIPS+Cash+bonds), I’m still working, with about 3 years away from the Big R. I knew I wanted an asset change to place me more in line with the Trinity study (aka 3-4% safe withdrawal rate for lifetime), but was waiting for a 60/40 or 70/30 rebalance until this type of event. I just pulled the trigger on that yesterday and then saw this post. Now it’s time to wait over the next few years and see if this was the right decision! The other way to think about this: If the markets don’t recover and continue to plummet from this Corona 19 event, well then it probably means the virus was a more catastrophic event and having funds in a retirement account won’t even matter at all.

  17. A bear market is great if you’re young. You will have plenty of time to recover and you can average down.
    For older folks, I hope they prepared. You need a plan so you can sleep at night.
    I’m surprised the market drops so far so fast. I’m starting to run out of ammo here. It’s probably near the bottom, but who knows…

    1. Joe, great to see you getting in while I still had my spam filter turned off! Smiles.

      As for “I’m starting to run out of ammo here. It’s probably near the bottom…“, I made that mistake in 2008 and am trying to be more patient this time around, hence my “1% buy for every 5% correction” strategy this time around. I may have regrets, but I enjoy trying new games to outfox those pesky bears. They haven’t killed me yet…

  18. Don’t forget about tax loss harvesting from your taxable positions. Sell fund/ETF shares, using the specific tax lot identification method, that are at a loss. Then invest that cash in another fund/ETF that is different enough to avoid wash sale issues but similar enough not change your asset allocation. For example sell an SP500 fund/ETF and buy a total stock fund/ETF. Wait 31 days (to avoid wash sale issues) and buy back your old position. That loss can then be used to offset capital gains dollar for dollar and will roll forward indefinitely until used up. I still have losses that I harvested in 2008. Although they likely were exhausted in 2019 so this bear will give me a fresh supply. It’s really nice to be able to create my retirement cash by selling taxable positions and then offset the gains with my harvested losses. A tax free transaction. Also nice to be able to “zero out” those pesky mutual fund capital gain distributions. Remember: investments are a matter of option, taxes are a matter of fact.

    1. You’re spot on, Marc. If I’d have taken more time with the post, I clearly would have included tax loss harvesting. A key strategy to implement while the bear is roaming around. Thanks for the valuable addition to the discussion. I love your “remember” line – taxes are, indeed, a matter of fact.

  19. Hi Fritz
    Great post as ever. I’m certainly not selling, but I do have a bit of a pot ready to go in one of my ISA’s, so I will consider buying some over the next few weeks. Like you, I also have a pot I play with, which I use for my ‘riskier’ investments. Some win, some lose, but overall I am (was) well up. To be honest I haven’t looked at my overall figures. It’s only a step on a long journey….

    1. “To be honest I haven’t looked at my overall figures. It’s only a step on a long journey….”

      Erith, your attitude is a true testimony on how to live well in retirement! Thanks for being such a loyal reader and commenter on my blog!

  20. Hi Fritz,

    I thoroughly enjoyed reading your post and will forward it to my husband as it is always better to hear these kinds of things from an independent (and trusted) source than your own spouse.

    One thought that crossed my mind and that I would like to run by you is that COVID-19 not only affected the market but also the economy (as we all know, they are not the same) – the worldwide economy that is. I was thinking that this could potentially mean that prices for consumer goods and other living expenses may go down and stay there for a while, which would mean that you can buy more for your Dollar.

    What is your take on that?


    1. Daniela, I suspect the economic impacts of this will be widespread, and very hard to estimate. Clearly, a drop in demand should put pressure on pricing. China, for example, saw an 89% decline in car sales in February, so you could certainly expect car prices are under pressure. The oil industry is also seeing severe pricing pressure, though that’s also due in part to games between Russian and OPEC. Bottom line, I suspect there will be economic softeness as a result of this, and that should be deflationary in certain commodity sectors. Not sure about your view that they’ll “stay there a while”, it’s all a question of how quickly things bounce back after the Coronavirus impact is more clearly understood.

  21. I have been doing a little bit of Dollar Cost Averaging with the S&P 500. Now some would question why an 82 year old still considers himself to be a “long time” investor. Because I think it’s worth the chance that it will recover in less than 5 years, probably within 2 years…Fortunately our monthly income from A Pension and Social Security more than meets our monthly needs. In fact, setting aside $$ each month into Vanguard Bond Funds and Money Market. We occasionally dip into our accounts to buy things like my new Jeep Gladiator Overland…..

    1. Curtis, I suspect you’ll be living until you’re at least 102, so you’ll have plenty of time for the rebound. I LOVE your new Jeep, that NPS Volunteer license plate is the perfect fit to the perfect vehicle for you. Thanks for stopping by!

  22. Hi Fritz,

    What do you mean by the 1% buy guideline you follow? Can you give us an example on how that works? Luckily, I am still holding onto last bit of my “remaining” dry powder after buying some of the dips and the market keeps sliding further. I am buying a bit haphazardly and could use some guideline to take advantage of this Bear market.

    “1% buy for every 5% correction”

    Thanks a bunch

    1. Michael, thanks for asking for clarification, it’s important for folks to understand if they’re considering following the approach. Simply multiply your Net Worth times 1%, and that’s the amount you’d move from cash/bonds to stocks with each 5% drop in the market. So…if your net worth is $1M, you’d move $10,000 in each tranche. Hope that helps define the specifics for you.

  23. I love it. A younger Fritz kept on “trucking.” Today’s Fritz keeps on “tranching.” And we’re right there with you. Bought another tranche of stocks yesterday. It pays to be an RM disciple. Having a Cash Bucket of five to six years gives one a lot of intestinal fortitude. Great post, my friend.

    1. Mr. G, amazing minds think alike. I didn’t see your “I lost $60k” post until after I’d written mine – amazing how much comfort that cash cushion provides. Glad to see we’re both taking advantage of the buying opportunity, it’s interesting how so few people handle the dips with a strategic approach. I’m not the least bit surprised that you are not among them. Thanks for stopping by.

  24. I am about to buy a condo in a college town to rent out to students (and to eventually, perhaps retire to)…. It is in the town where I want to retire, so I consider it a double win. Yeah, I “might” save money if I waited for the real estate market to drop, then again I might not. I still plan to retire to it, and to rent it out for five years so…….It is at a very reasonable price at $62,000, and it is the size I want to retire to, located close to campus so I can attend plays, musical performances, football games, etc. It is also close to restaurants and Aldi, and Target and other shopping so I consider it to be a good move.

    1. Cindi, sounds like a good plan. We bought a vacation cabin ~7 years before we retired and rented it out as a short term vaction rental until we moved in permanently for our retirement. It worked out well for us, hope your plan works as well for you!

  25. Financial planning is mostly theory until the bear comes and tests the plan.

    Now to the end of the year (beyond the presidential election), if your every day way of life is not impacted by the bear. Congratulation, you have a solid financial plan for the next 10 years – until the next bear will come to test your plan again.

  26. Dave, First Good morning I am a relatively new reader of your blog. Today’s post on the “Bear” intrigued me. I am a few yrs away from retirement 1 to 3 probably shorter if the non profit I work for continues it bad business practices, but that a story for another time. I love the fact that you are a optimist and I so agree with out a bear market you would have to try to time the market or find the next Starbucks for a deal buying stocks. I especially agree with you statements that it is great for those of us still working and contributing to our retirements, finally buying at a bargain! Well just wanted to say thank you for your blog, I am learning and enjoying it tremendously. Bryan

  27. I’ve done three small rebalances over the past couple of weeks, of a couple percent each time. I’m retired three years (54) with a 50/50 ratio (only bc the market P/E was nearing 30, otherwise I would’ve been more “normally” aligned around 60/40). Even with the market drop, the current P/E is still in up around 25, so still on the slightly high side, but I’m making small rebalances back toward 60/40, but only incrementally. After three rebalances in the past few weeks, I am still only sitting at 52.5/47.5 (stocks/bonds). If the market continues to drop, I will continue to go higher on the equity side towards 60%. If it holds as is, I’ll continue holding steady. If it rockets based on some “Corona cure”, I will rebalance back toward 50/50.

    1. I was at 55:45 before the two weeks and now sitting at 47:53 as of last Friday, even with 3 small re-balances.
      Now even bond funds are losing.

  28. Fun stuff. I’ve been wanting to get a little more savvy with my bond vs stock allocation, so this is a good start to start thinking about savvy ways to balance that allocation. Currently I don’t have bonds, as I possess cash-flowing real estate that acts in a similar way to bonds with a better return, and then I keep almost all of my paper investments in stocks. I like the idea of having a balance of bonds and stocks instead, so I can buy more bonds when the market is high, and then more stocks when the market is down. Thanks for putting this together.

    1. Billy, great to see you here, my friend. Glad my words were helpful as you think about adding some bonds. Tough call in today’s low-interest rate environment. Real estate is a great asset class, but diversification is always a good idea. Thanks for stopping by!

  29. Fritz,

    Great reminder about the bear market!

    Your bucket strategy has saved me. I’m retiring at the beginning of May. I started moving to a bucket strategy a year ago. It has saved my tail ! Knowing that I’ve got Cash and Bonds covering my next 16 years until SS kicks in at 70 is an amazing feeling.

    Of course, I’m probably going to take some bond money out of Bucket 2 and buy some more stocks. I’m looking for the courage to “buy low”. There are two potential long term problems in our future. One, very low bond returns for Treasuries and other safe assets. Two, selling bonds now that have also not held up well (total bond for example) to buy stocks is a bit scary right now.

    The market is so volatile right now, prices jump all over the place every 30 minutes.

    1. Fritz, thanks for this post. It’s full of great info in your always light-hearted style. I am please that most of what you discuss, I had already implemented. Always learning.
      I have a question. Along with it being a good time to do a ROTH ladder, would it also be advantageous to do our RMD for 2020? We have a small, Inherited Traditional IRA. The RMD is a small amount that won’t make or break anything, but I’m wondering if there is an advantage to doing it now?

      1. Hey Becky, thanks for your kind words. I do think it’d be a good time to do the RMD as well, assuming you’re going to roll the proceeds back into whatever asset class you’re withdrawing them from. I wouldn’t pull an RMD out of stocks and hold it in cash, since you will be “selling low”. That said, you’ll get more shares out for the same dollar withdrawal since we’re in a bear, so it would be a good time to consider executing your RMD. Just be careful when you figure out where you’re going to invest the funds.

    2. Your bucket strategy has saved me.

      Drummer, best comment on the post! Glad to know my words are making a difference, good luck as you cross The Starting Line in 5 short weeks! Great timing, my friend. Wink.

      On a serious note, this is a perfect example of why you MUST have Bucket 1 fully funded BEFORE you reach your retirement date. Well done.

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