Befriending the Bear

As creator of "The Coffeehouse Investor," I have spent years advocating for the merits of building low-cost portfolios of broad-based index funds. This approach can allow investors to ignore the short-term swings in the market and focus on financial planning issues that truly matter, such as asset allocation, estate planning, and forward-looking tax planning strategies. Most importantly, the strategy provides time to focus on more important things with families, careers, and community.

A few weeks ago, I revealed that I have endured eight bear markets in my 43-year career in the financial services industry - each marked by the S&P 500 index declining by 20 percent or more. Professionally, these bear markets were challenging, as I watched client portfolios decline day after day, month after month, and sometimes year after year.

However, on a personal level, I rather enjoyed bear markets. Let me explain why. Bull markets often left me feeling depressed. In contrast, bear markets can provide an opportunity for me to buy more shares at lower prices in my workplace retirement plan. After all, who doesn't like to buy things on sale?

With retirement on the horizon, my perspective has shifted. I won't have the earned income to purchase more shares at cheaper prices during future bear markets. Now is the time to help protect myself from "sequence of returns risk"—the risk of experiencing a bear market just as I begin withdrawing money to cover my expenses.

Bear markets are a fact of life. I best be prepared. To help safeguard my future, I am taking two major steps:

Financially, I am ensuring that my portfolio is designed to match my risk preference. This strategy helps to provide a buffer against market downturns to avoid selling at depressed prices.
Emotionally, I run a fire drill, taking the total dollar amount I have in stocks and lopping off 40 percent to simulate a bear market. This exercise helps me gauge whether I can handle the decline and still sleep at night.

Perspective is Everything

There is a financial quote that I keep close to my heart as I peer out over the next 30 years (fingers crossed!) of unemployment called "retirement." The quote comes from William Bernstein, "If you've won the game, stop playing." This serves as a reminder to protect what I have already achieved rather than taking unnecessary risks in common stocks.

Plan With Confidence

As you prepare for your own retirement, I encourage you to consider these strategies and quotes. Bear markets are inevitable, but with thoughtful planning and a diversified portfolio, you can navigate them with confidence and get on with your life.

Let's build a plan together to help you manage market events and your life. Connect with me on a complimentary strategy call* and discover how our comprehensive strategies can benefit you.

Investing strategies, such as asset allocation, diversification or rebalancing, do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.

© 2025 Edelman Financial Engines, LLC. Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. The Coffeehouse Investor is an educational platform provided through Edelman Financial Engines, LLC. Any educational content is for informational purposes only and does not constitute investment, legal or tax advice. Third party content and links should not be construed as an endorsement of any services, products, guidance, or points of view outside Edelman Financial Engines. All examples are hypothetical and for illustrative purposes only. Any advisory services are provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Certain services are available on an educational and guidance basis only. Results not guaranteed. More information on Edelman Financial Engines and its services may be found here. AM4272208