How The Coming Bear Market Can Create Lifelong Wealth For You

During my college days, I was a big fan of Blue Öyster Cult, including their song “Don’t Fear the Reaper.” For investors, the Reaper comes in the form of stock market bear markets. New subscribers to my newsletters often ask about tactics and strategies to avoid losing money in the next downturn.

My response is that market downturns are inevitable and unpredictable. To be successful, investors need to have a mindset that views stock prices dropping as an opportunity to build future wealth.

Charlie Bilello sends out his Week in Charts email, which is filled with great information.

I want to highlight a couple of charts that show market declines or even bear markets are nothing to fear.

This chart displays the annual returns of the S&P 500 from 1980 to the present. Examine the red percentages on the bottom half of the chart. Those numbers represent the maximum drawdown of the S&P 500 for each individual year. Note that there has been a significant, 10% or greater drop in the index almost every year. Yet, the blue lines of returns for the year show that the positive years vastly outnumber the down years.

Now another fun chart.

This chart shows the 12-month returns for the S&P 500 12 months after a bear market bottom. Those are some fantastic one-year returns.

What happens with investors is that they see prices going down and sell out of the market. But they don’t see the bottom and miss most of the gains coming out the other side. As I tell my subscribers, the market always recovers from a downturn, and this chart illustrates the remarkable power of those recoveries.

With my income-focused investment recommendations, subscribers worry less about market declines because they know that accumulating dividend-paying shares during a market downturn will result in a significantly greater income and wealth upon emerging from the bear market.