While scrolling Instagram (as we do) we saw this quote in the comment section of a post about bear markets:
We asked Sean Bjorklund, VP of Private Wealth at connectFirst if this was true. He took a moment to think it over, then said: ‘Firstly. It's healthy to have an economy that expands and contracts because it's part of the natural cycle. It’s impossible to have a universe where the economy is constantly growing in a very perfect line where we’ll grow at 3% each year for the next 80 years.’
So, yes and no.
Any financial advisor (we’re being presumptuous – let’s say ‘most’) will tell you to wait out a bear market. As Sean said above, it’s natural to have dips in the market, where your stocks lose value for a period of time. But things always swing back up.
Let’s take a look at a timeline of bear vs bull markets:
There’s an ebb and flow between bear and bull markets.
To better understand, let’s breakdown the definition of a bear market vs bull market.
The last time we hit a bear market was the crash in 2008. Are we heading in the same direction?
When does a recession happen?
‘We never know if we're recession until we're already in it,’ says Sean. ‘Because all of the guidance and measures we are looking at through the rearview mirror.’ In other words, we are not currently in a recession. And we likely won’t know until we are.
A recession can be defined as two quarters of declining growth domestic product (GDP). This is why a recession is hard to predict in advance. As we’re talking to Sean, he gets focused on something in his home office, staring off the screen silently. We ask what he’s spotted.
He answers that he’s looking at economy and stock market updates on his TV. ‘This is why you shouldn't look at it every day. But, you know, everyone talking basis points and how much it's going up right now. So, the Bank of Canada [went up] one hundred basis points. So if you're borrowing -which most of us are – that just got a lot more expensive.’
‘And that's the primary tool of central bankers to slow down an overheated economy. And we're absolutely in an overheated economy right now… they did not anticipate the inflationary numbers we have right now and they had to react in a really, really aggressive way and hopefully they can maneuver us off landing…so we don’t go into a full recession.’
The important thing to keep in mind with bear markets, is that they are temporary. The market will swing back around. It may appear that you are losing money, but looking at long-term investment strategies, this is just part of, as Sean said, the natural life cycle of an investment. There will be downs but there will also be great up’s.
Understanding your risk appetite and investment goals is key to how you approach your investments. If you’re saving for your child’s education or your own retirement, this bear market is no skin off your nose. Just wait it out. We’ll enter a bull market, and your stocks will soar.
If you’re a short-term investor looking for a quick buck, this may be the time to get invested while stock prices are low, but you will have to hang on until we go back into a bull market. In a bull market, stock market prices will inevitably go up and could earn you money if the stock you choose is successful.
If you want advice on how to invest, book an appointment today.
If you look back at the graph above, you’ll notice that upswings are much greater than the downswings. It’s worth waiting out the bear market. Don’t get hasty and sell your investments. A long-term investment anticipates this type of change. Keep going. Bear markets help you grow, so we think it’s fair to say that they, too, make you rich.