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S&P 500 officially enters bear market territory: Here's the 'No. 1 thing' a chief market strategist says to keep in mind

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Key Points
  • The S&P 500 is officially in a bear market, having closed more than 21% down from its January high, according to S&P Global Down Jones Industries.
  • "No investment goes up in a straight line forever," says Gargi Chaudhuri, head of iShares investment strategies for the Americas. "Dips and volatility in the market are normal."

After months of flirtation with bear territory, investors have made it official. After a sharply negative trading day Monday, the S&P 500 is in a bear market, having closed more than 21% down from its January high, according to S&P Global Down Jones Industries. The index sank another 0.4% Tuesday.

For investors, especially those who have yet to experience major drawdowns in their investments, encountering a bear in their portfolio can feel an awful lot like encountering a live one in the woods: frightening.

But as with any bear encounter, the last thing experts recommend that you do is to run away screaming. "The No. 1 thing to stress to advisors and their clients is not to panic-sell," says Ryan Detrick, chief market strategist for LPL Financial. "There could be more pain coming, but don't make any drastic moves."

Here's how he and other financial advisors say you can approach this less-than-cuddly market.

Remember your market history

No two market declines happen for exactly the same reason, which is why each one can feel unique and uniquely terrible. But it's important to keep in mind that this is likely to be one of many bear markets you will encounter over the course of your investing career.

"No investment goes up in a straight line forever," says Gargi Chaudhuri, head of iShares investment strategies for the Americas. "Dips and volatility in the market are normal."

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How normal? Prior to the current market slide, there had been 21 bear markets dating back to the famous stock market crash of 1929, according to Yardeni Research. Those slides, on average, lasted for 311 days from peak to trough, and stocks dropped an average of 37%.

Given that those are averages, some bears will be shorter and others longer, and some will show steeper declines than others. Because analysts measure bear markets from the date of the most recent high, this current bear is already more than five months old, having begun after the close on January 3.

But ultimately, each bear market in history has had one thing in common, notes Detrick. "Stocks have always returned to new highs."

Keep an eye on the long term

So if the market ought to bounce back eventually, you might be wondering if it makes sense to sell now, and then try to buy back when the markets appears to be rebounding. But that is a risky proposition, experts say.

"Trying to call market bottoms or tops is very difficult," says Jason Draho, head of asset allocation for the Americas at UBS. "You're better off thinking about how your portfolio can help you achieve a long-term plan."

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If you have a goal that's far off in the future, think about how a steep decline in stock prices today will fit in to your career as an investor decades from now. Consider 1987, when the stock market shed a third of its value in just over three months. That must have felt like a catastrophic fire sale at the time, right? Now search the S&P 500 on Google and set the chart to "max." The decline barely registers as a blip.

That's why you'd be wiser to continue investing during a bear than trying to get tricky over something that likely won't matter much in the long run, experts say. "Rather than selling when things are down, a long-term investor should think about adding exposure and buying," says Draho. "Don't get overly emotional, because you have plenty of time to recover."

Stay diversified and make some adjustments

One way to keep from letting your emotions get the best of your during a bear is to make sure your portfolio is calibrated to the amount of risk you're comfortable taking. Over the past few years, a roaring bull market emboldened many investors to buy speculative investments in the hopes of getting rich quick.

Many of those investments, including some cryptocurrencies, have sunk faster and further than the broad market this year, leading investors who devoted an oversize chunk of their portfolio to them in rough shape.

"This is a reminder not to chase the shiny object," Detrick told Grow. "Investors throughout history have chased return. Some of the previous high-flyers have pulled back 70, 80, 90%."

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Now is a good time to make sure that your portfolio is broadly diversified, he says. By owning a wide array of investments that move in different directions at different times for different reasons, you can help reduce the impact of an outsize decline in any one particular asset.

And if movements in the market have thrown the percentages you laid out for your long-term investments into disarray, now may be a good time to reset. Rebalancing keeps you invested in line with your tolerance for risk while ensuring that you add more shares of investments you like when they're trading at lower prices.

The views expressed are generalized and may not be appropriate for all investors. Past performance does not guarantee future results. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses.

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