Why Young Investors Should Love A Bear Market (2022)

Today we discuss how young investors can take advantage of the stock market being down in 2022.

Why Young Investors Should Love A Bear Market

Show Notes:

Full transcript:


Matt Calcagno & Alex Okugawa

Full Transcript:

Alex Okugawa 0:00
The stock market is down big in 2022. So why should young Investors love bear markets? Today we’re gonna discuss what you can do to take advantage of it. Stay tuned.

Hey there, it’s Alex and Matt from One Degree Advisors. Today we’re discussing a bear market here and 2022. And we’re talking about what younger investors should be doing to take advantage of these market conditions. I mean, Matt, it’s no surprise, it’s human nature, right? We don’t like it. When the stock market’s going down, we get that thing in the mail, our quarterly statement, we open it up going, oh my gosh, my 401k brokerage, whatever is down 1050 100,000 bucks, what the heck is going on. But today we’re talking about younger investors, and maybe not just younger investors per se, but those that are still contributing, and they’re still putting money away. Why contributing to a falling marking over time can be a good thing. Yeah, and

Matthew Calcagno 0:59
Yeah, this might sound a little bit counterintuitive. But if you’re a younger investor, and you’re contributing, this is actually something you could take advantage of. And let me show you a visual way. So if you’re taking a look at it, we have stock a stock B, and two different market conditions. Stock A, the markets are hot it’s a bear market, and stock B the markets a little bit in the red, it’s falling. So over time, if you’re gonna invest $100 a month, for the next year, it’s as simple as stock you’re buying at a more expensive price and stock B, you’re buying at a cheaper price. So eventually, when you get to the future, stock B, you’ve bought in at a lower price, you have more, more stock B Exactly. It’s as simple as that.

Alex Okugawa 1:44
Yeah. And again, this is under the assumption that over time, markets averaged out. So if we can’t agree upon that assumption, then this illustration doesn’t work. But if history is any, you know, a provider of what’s going to happen in the future, we can say, hey, you know, this can be a good thing over time. Now, let’s talk about how folks can take advantage of this. And really, the first thing is dollar-cost averaging. I mean, this is what I think most people are most familiar with, right? This is like your 401 K, every paycheck, you’re putting money in, to be quite honest. I mean, you’re contributing whether or not the market is high or low. So if you’re putting money in again, putting money in every single paycheck when the markets are low, that can be a good thing. You’re buying more shares.

Matthew Calcagno 2:26
Yeah, what I like to call is putting your money on autopilot, right, putting your contributions each month or each quarter on a consistent basis. If you have the right investment plan, this is a great option because you’re not trying to time the market, you’re not, you know, waking up every morning, looking at the newspaper and say, Oh, I’m gonna put my money in here today. Now you’re setting it on auto-pilot.

Alex Okugawa 2:46
The other thing too is that the newspaper and the news outlets will never give you the all-clear sign now. Right? They never sell fear, uncertainty, and doubt. Alright, the second thing here is rebalancing. So you really should have an investment plan. And that means targeting a certain level of risk that aligns with your risk tolerance, goals, age, all that good stuff. But here’s the problem is over time life gets in the way, right? It’s just life markets change your life changes. So what happens when those targets get out of whack?

Matthew Calcagno 3:12
When those targets get out of whack whether the market just takes off, and you’re you’re in a bull market, sometimes you want to rebalance back to the plan, which basically means taking a little bit of profit off the table. And right now what we’re seeing is the markets are in a little bit of a drawdown where maybe it’s a good time to reinvest and go back into your investment plan and get towards more growth. Get back to that target. Yep, exactly.

Alex Okugawa 3:36
And rebalancing should really be a consistent practice over time. It’s a disciplined approach. It shouldn’t be, you know, like you mentioned earlier waking up one morning and saying, Well, what should I invest in? Or should I rebalance today, and we did post a video of this last year closer to the top of the market. So that’s a good view video to watch that people can click on above. Alright, last thing here, lump sum. So there are plenty of folks and maybe you do have some extra cash to invest? could now be a good time to put that money to work.

Matthew Calcagno 4:09
Right. And let me give you two points here. Okay. Number one is in favor. Okay. So, yes, you have a lot of cash, and maybe it’s time to invest. You’re not trying to time it right, you’re gonna go through and no one can perfectly time the body Exactly. No one could perfectly time the bottom and you know, looking at today, we’re down. It looks like double digits. So and a reason against that is, you know, some of the money you have is short-term money. Now, it’s your emergency fund captures, let it stay in that bucket. You know you don’t want to necessarily take all that money and throw in risk assets.

Alex Okugawa 4:43
Yeah, you don want to necessarily deviate from your plan, right? Just to put some meat on the bones here. Let’s say you have six months in an emergency reserve. Right, you see this market down maybe you don’t go well. I’m gonna blow out my emergency reserve because I see the markets down. Right. That’s just being greedy. And that’s deviating from the plan habit discipline approach. Follow the process over time. That’s what works well for folks over long periods of time. And like we mentioned earlier, I mean, if your portfolio is out of alignment with your investment plan, it can be a good time to rebalance. And we made a video on this back at the market, peak, and 2021 We recommend watching that it gives people have good grounding and understanding. And now let us know what you think. How are you reacting to this bear market and 2022 and if you’re a younger investor or still contributing, what are you doing to take advantage of it? Leave your thoughts in the comments below. And if you enjoy today’s video, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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