Is Your Portfolio Prepared for a Bear Market?


Is Your Portfolio Prepared for a Bear Market?


Do you remember the last bear market? It was in 2008 and it was devastating. Many retirees were faced with the prospect of having to go back to work or reducing their annual withdrawals or the possibility that they would run out of money before they passed away.

When it comes to investing for your retirement, the sequence of returns is critical. When you’re nearing retirement, your assets will be at their highest level. At that point, you do not want to experience a major correction like we saw in 2008 because your portfolio may not have time to recover – a 50% decline in the stock market may prevent you from being able to retire! And let’s not forget that a 50% decline in your portfolio would require a 100% gain just to get back to even!

We’re now in the ninth year of a bull market – the second longest ever – and memories of the last market crash have dimmed as a result, but rest assured, there is a bear market in our future. Stocks have advanced without a 20% correction since 2009 and volatility is at a multiyear low. Given that the average bull market lasts around seven years, do you think we’re closer to the top or the bottom?

As bad as 2008 was, it might not be an isolated incident as the average stock market crash results in losses of more than 40% – now that is a scary number. Are you prepared for a crash like that?

Of even greater concern, the next bear market will be unusual for a number of reasons:

  • The size of the population of people 65 and over will be the largest ever.
  • A large number of retirees are dependent on their own assets to fund their retirement.
  • Monetary policy has forced investors into riskier assets in order to achieve sufficient returns, leaving traditional, safer assets like bonds unattractive.
  • A number of public pension plans are severely underfunded.

All of which points to the need to protect yourself and your retirement. It’s relatively easy to make money in a bull market. The hard part is not losing money in a bear market. The thing is, if you wait until it’s upon you, it’s too late. You have to prepare ahead of time. And in this case, a buy-and-strategy won’t help you. But an active strategy can.

The key to an active strategy is that it focuses on managing risk. And that is a crucial element in preparing for the worst. At Inukshuk Capital Management, we use active risk management, combined with a disciplined, rules-based investment policy to help minimize the downside in a bear market while allowing investors to participate in a bull market as well. And that may mean the difference between enjoying your retirement and having to go back to work.

If you would like to learn more about how we actively manage risk for our clients, please contact us here.


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