Bear markets are typically defined as a 20% drop in the broad stock market. The S&P 500 Index, a barometer for the global stock market, has fallen by that amount since hitting a record high on 19 February – pushing the market into bear market territory.
Source: Tiger Brokers trading app
The S&P 500 Index dipped from a high of 6,147.43 on 19 February 2025 to 4,910.42 on 8 April 2025 – crashing just over 20% in the space of 6 weeks. The biggest dip came on the back of Trump’s US Reciprocal Tariff announcement on 5 April 2025.
While there has been a slight rebound on 10 April, as Trump announced a pause on all tariff measures, except for an escalated 125% tariff on China, it can still be a scary time to invest. Especially since many of us have seen the stock market crash over 25% in 2022, over 30% in 2020 and close to 50% in 2008.
What Should Investors Do In A Bear Market?
Today, the financial markets are much more accessible, and news, content and investment ideas can be easily found online. New investors may be easily inundated with too much information.
Even for more experienced investors, navigating a stock market crash is never fun. Worse still, such investors would also have significantly more funds in their portfolios – making it difficult to stomach big downward swings.
So, what should we do in a bear market?
#1 Do Nothing – Stick To Our Investing Strategy
If we’re already investing in a broadly diversified portfolio, perhaps the best thing we can do is nothing.
There must be a reason why we have invested in such a diversified portfolio. We should revisit our original investment thesis – and if it still makes logical sense for the long-term, then there’s little reason to sell now.
In fact, the worst time to sell a long-term portfolio is right after a deep market correction. Instead, we should continue investing the way we have. One common method we can take advantage of is to Dollar-Cost Average (DCA) in the markets. This way, we can buy even more of of our investments at more attractive valuations.
Of course, we may also realise that we made a bad investment decision if we review our investments. In such instances, it would make sense to sell the losers. It’s also important to note that even if our portfolio is suitable based on our profile, we may not have the appetite to carry such risks.
#2 Rebalance Our Portfolio
When the stock market experiences a significant swing, whether upward or downward, we should review our portfolio – to see if our allocation into the different assets has significantly shifted. Within our stock portfolio, we may find that our exposure to certain sectors has ballooned or shrinked beyond what we intended. Similarly, we may find that our exposure to other sectors has diminished beyond what we intended.
When this happens, it might be a good idea to rebalance our portfolio so that it has the same amount of stocks and/or sectors as we planned. Of course, this still has to go hand-in-hand with the first point, which is to understand whether our initial allocation still has merit.
For example, in the early days of COVID-19 pandemic, the hospitality sector crashed far more than any other sector. On the surface, it could seem like we should rebalance our portfolio by buying more travel-related stocks. But if we review our investment thesis, we will likely want to reduce or maintain our exposure to the sector.
Similarly, while the general stock market has crashed, stocks that are heavily reliant on exporting products into the US may be more impacted due to higher US Reciprocal Tariffs. We may want to adjust our views on some of these stocks.
Similarly, even if we do not have the expertise to pick individual stocks or sectors and simply invest a portion in equities and bonds, we may find that our allocation to stocks has dropped because stock prices fell far more than bonds. In such a scenario, we may choose to rebalance our portfolio to revert it to our original allocation. We may also realise that we do not have the stomach for wild fluctuations in our portfolio and choose a new portfolio allocation for our stocks and bonds that is less volatile (i.e. with more fixed income exposure).
#3 Add Some Assets That Provide Income
When stock markets drop, it can be even more problematic if we are relying on income from our portfolio to supplement our lifestyle.
One way to mitigate this (and not have to liquidate too much of our portfolio when stocks crash) is to derive some income from our portfolio. Even if we do not rely on income from our portfolio to fund our lifestyle, such income can act as our investment war chest to put into investing even more in our desired asset class/sector. We can consider blue-chip REITs and stocks as well as bonds.
#4 Invest Even More!
We’ve covered why there’s no reason to stop investing during a market crash. Another approach we can take is to invest even more when the stock markets are down.
Personally, this is an investment approach I adopt to a certain degree. I tend to invest a separate lump sum (beyond my regular investing plan) when the stock markets dip 10%. Unfortuantely (or fortunately, since no one knows yet), I was too occupied with work to buy into the crash over the last few days.
The logic here is that when the market dips, we are able to buy the same portfolio that we’ve already wanted at a much lower valuation. As a caution, stock markets can continue dropping much more than the initial 10% (with various examples cited above).
#5 Continue Building On Our Investing Knowledge
Just like money compounds over time, our knowledge also compounds as we build on the existing information we have.
There’s simply no end to how much more we can learn about investing. We can always read more books and visit websites like DollarsAndSense, listen to podcasts and watch videos, talk to industry professionals and financial advisors, enrol in investment courses, and do a variety of other things.
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