6 Simple Questions to Ask Yourself So You Can Survive (and Maybe Thrive) Even in a True Bear Market

We have come to that point in the market cycle where the path ahead dramatically diverges. We will either see another bounce, rewarding investors who buy the dip. Or, we will finally see a true bear market for the first time in 18 years.  

Investors have become used to quick 20% drops in the S&P 500 Index ($SPX) that are over before the pain really sets in. 

But the reality is that a true bear market can take away years of gains and leave you working to get them back over the course of a decade or longer. 

Do You Take Your Vitamins? 

After managing money professionally for more than 30 years, I’ve noticed that there are two distinct types of investors: 

1. Those who are proactive and account for a wide range of possible outcomes when managing their wealth.
2. Those who count on the market always being on their side. 

Since 2008, the second group of investors has been successful. This doesn’t mean that they didn’t take a lot of risk. It simply means that major losses did not materialize during that time. In the same way that if we take two people, and one of them eats terribly, never exercises, never sees a physician, and lives a highly stressful life, they might both live to be 95. 

Those two people took on very different levels of long-term risk. Yet, it worked out for both of them. But as you scale from two individuals to broad groups, the results of gambling big with your money (and health) look a lot less appealing. 

6 Questions a Day Keeps the Bear Market Away

I interact with enough investors that I can say with confidence that many currently fall into that second bucket. More power to them!  

However, investors who wish to proactively manage risk deserve a strategic path to follow. In this current phase of my career, my goal is to help folks just like that find their way. 

For instance, I manage a 10-ETF model portfolio that I have written about here previously (Read more). 

You’ll notice: 

• Most of these funds move independently of each other, at least to some degree.
• I’ve assigned allocation RANGES for each ETF, with cash as the residual allocation. That is, if the weights of the other nine ETFs all add up to 85%, the other 15% is going into cash.

I run this portfolio live with my own money, and post it on my site, so people can follow along. However, while I invite investors to “copy off of my paper,” the real message in creating model portfolios is to provide a wide audience with a “spark.” I want to serve as an example of what can happen, financially and emotionally, when you create and follow an investing strategy that’s aligned with your goals.

To follow in my footsteps, you’ll need to answer: 

1. Do you want to invest in ETFs, stocks, or both?
2. Which assets will you consider?
3. How many individual stocks or ETFs do you want to own at one time? Is it a fixed number or a set range?
4. How will you decide what to allocate to each asset?
5. What factors will drive your decisions? Will you sell based on specific screener results, macro influencers, or a set rebalancing calendar?
6. What would prompt you to consider revisiting your strategy entirely? And what sort of decisions would you make? 

As a sample, here’s how I would answer those questions. However, please note that I am just one guy and can’t (and shouldn’t) speak for you! 

1. I’m invested in ETFs only in this portfolio.
2. I focus on 10 ETFs, seen above. From the universe of more than 4,000 funds, I selected 10 that I felt were a solid enough roster to “go to war.”
3. 10.
4. I use a combination of the Roar Scores of each ETF (read more) at any point in time and a pre-set allocation range. These are “guardrails” I set around my positions. For instance, QQQ, DIA, and GOVI will be naturally higher weightings than something more volatile like VIXY.
5. I formally revenue and consider adjustments every Wednesday, but I’m willing to act at any time when market conditions create opportunity.
6. I occasionally make changes to my set group of 10. For instance, I once included a modest allocation to a Bitcoin ETF. 

Exit the Rat Race for Your Health and Wealth 

The financial media has conditioned investors to suffer from a toxic dopamine addiction to individual stock tips and “what do you like right here?” questions. They treat the market like a horse race where you have to pick the winning horse every single day. 

Moving from tip to tip, expert to expert can potentially be a viable part of your investment research process. 

But should it be the whole process? I don’t think so.  

To me, for the “serious money” I manage for myself, long-term return generation isn’t about finding a magic bullet. It’s about understanding portfolio context and systemic interaction. The gears that run the machine.

Algorithmic trading and the heavy use of S&P 500 Index funds are finally coming out of the shadows as investors recognize the profound influence they have on the market. As I noted above, you have two options for how to respond. 

We can keep trucking along like nothing’s changed. Or, we can build some “moats” if you will, around what we own, what makes us buy, sell and hold, and even how many stocks and ETFs we care to track at one time. 

As one of the great investors of the past 40 years, the late Steve Leuthold, once said: “forecasts are for show, but our portfolio allocation changes are for dough.”  

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.