There are a handful of tactics you can employ during a bear market:
Remember that bear markets are painful but temporary. Sticking to your plan is key, so resist the urge to change the risk profile of your portfolio or make sizable shifts out of stocks or into cash.
Use sell-offs as opportunities to harvest capital losses—a strategy that, over time, we estimate can add about 0.5% to after-tax annual portfolio returns. Also, rebalance your portfolio so it doesn’t drift too far from your target allocation. In addition to reducing portfolio risk, this can also enhance upside capture.
Play for time
Look for ways to increase your savings rate or cut back on spending. This is also a time to consider tapping borrowing facilities as a bridge to avoid locking in losses, but don’t take on too much leverage in case markets don’t quickly recover.
While every bear market is different than the last, there is one constant: There are always market dislocations that can provide opportunities to enhance returns. Generally, we recommend leaning in to risk assets when market prices are out of step with fundamentals. If you enter a bear market well prepared, you may be able to unwind portfolio hedges and temporarily increase portfolio risk to take advantage of higher return potential.