So, let’s talk about what happens when the market heads south. Vanguard did a deep dive into this, analyzing over 8.4 million client accounts. They found that when prices drop, trading activity spikes. Like clockwork, as soon as stocks start to slide, people start frantically buying and selling, trying to time the market.
Vanguard’s data shows a big jump in trading volume during turbulent times—from 2011 to 2019, trading intensity consistently surged during downturns.
Here’s the thing: if you’re in it for the long haul, downturns can be your best friend. But keeping your cool is easier said than done when every financial outlet is screaming at you to “protect your assets!” So, before you make a knee-jerk move, check out these six mistakes that most investors fall into during bear markets—and how to dodge them.
Mistake #1: Going in Without a Game Plan
Here’s the deal: without a plan, most investors fall back on three animal instincts:
Chasing the highest returns they can find, no matter the risk.
Trying to guess the perfect time to buy or sell.
Reacting to every bit of noise in the market.
Without a strategy, people start flailing, hoping for quick fixes, and that’s where losses pile up. It’s like hopping on a plane without knowing how to fly and then trying to figure out how to fix the engine mid-flight. Real pros have a checklist for every situation and know exactly how to navigate turbulence before they even leave the ground.
Mistake #2: Losing Your Nerve
Got a solid plan and a diversified portfolio? Good. But if your holdings take a hit during a crisis, resist the urge to panic. Stock drops are part of the game, and every long-term investor has to go through them.
Vanguard’s research shows that between 1980 and 2019, the market saw:
5 bear markets (that’s when prices drop 20% or more and stay down for at least two months).
15 corrections (when prices drop at least 10%).
If you hold onto your stocks during these dips, you’re not losing anything tangible. In fact, if you’re reinvesting dividends, you’re quietly growing your share count. And when the market bounces back, that growth can send your portfolio higher than it was before the drop.
Mistake #3: Thinking You’re Invincible
A market crash is like a mirror—it shows you who you really are as an investor. When the market’s booming, it’s easy to feel like a long-term champ. But the true test of your risk tolerance comes when prices start dropping.
Every five or six years, like clockwork, the market throws a tantrum. If you’re not feeling great about your current portfolio in a bear market, it might be time to re-evaluate your strategy. Remember, confidence in good times is easy; the real test is sticking to your guns during a downturn.
Mistake #4: Trying to Time the Market
Thinking of selling now to buy back at the bottom? Welcome to the guessing game of market timing. Trying to pick the right moment to get in or out of the market is like playing darts blindfolded—there’s a reason even seasoned pros say it’s nearly impossible to get right.
As Vanguard founder John Bogle put it, “The market may be hard to beat, but it doesn’t need to be beaten.” Rather than trying to find the perfect time, focus on staying invested and following your plan. Chasing the highs and lows sounds great in theory, but even if you get it right once, the long-term results are usually less impressive than sticking with a steady strategy.
Mistake #5: Selling in a Panic
Thinking of selling during a downturn? Pause and consider this: for every seller, there’s a buyer on the other side. If someone’s scooping up the shares you’re selling, it might be worth asking yourself, What do they know that I don’t?
Market downturns can actually be a chance for long-term investors to buy quality stocks at a discount. Just because prices are down doesn’t mean a company’s value has tanked—sometimes it’s just fear driving the market. Don’t be the investor who bails at the worst time only to see prices rebound.
Mistake #6: Fleeing to “Safe” Investments
When the market slides, plenty of investors start shifting their money into bonds, cash, or even savings accounts. And while those assets have their place, making this move under pressure often benefits two groups:
Brokers who earn a nice commission every time you make a trade.
The government, which takes a cut of your capital gains through taxes.
Jumping into bonds or cash might feel safe, but in the long run, those trades can cost you in fees and missed gains. Remember, the real winners in a downturn are those who stick with their plan, not those who try to dodge every dip.
At the end of the day, if you have a solid plan, some patience, and a long-term view, you’re already better prepared than most investors. Don’t let the noise shake you out of the game. Remember, it’s often the ones who hold steady during the storms who come out strongest when the skies clear.