Can I Survive The Next Bear Market?

“Can you survive the next bear market?”

If you’d asked me this question two years ago or even five years later, my answer would have been a resounding “yes.”

Prior to leaving my regular job early last year, market crashes were simply opportunities to invest more in companies I believed in. With a steady income, daily expenses weren’t a concern.

But what about five years down the line?

That’s when I will have access my CPF Ordinary Account (OA) savings, providing additional cash flow and a significant buffer to weather any market downturn for at least five years.

This transition period is trickier. It’s taken some adjustment to see my net worth grow more slowly than I’m used to.

Even though it’s a better outcome than I initially anticipated, the slower recovery from the 2022 bear market has prompted me to take a closer look.

To the future me who is reading this post now.

“Stay calm, you’ve thought this through carefully. Continue to read what you had in mind when you were in a better state of mind.”

Let’s Learnt from the Past

While stock market crashes are relatively common, bear markets which is defined as a significant decline in major stock indices over a period of time, are less frequent.

Historically, they occur about every six years, but this is an average and not a strict timeline. As illustrated on a chart from Investopedia, the intervals between bear markets are unpredictable, ranging from two to twelve years.

In my investing journey, I experienced three such bear markets.

The first was Global Financial Crisis (GFC) in 2008. It was the most dramatic in terms of price movement, but I have little recollection of my feelings at the time.

The excitement of becoming a father and embarking on a new school experience, coupled with my relatively small portfolio, probably outweighed any anxiety I felt about my investments.

The impact of COVID-19 crash hits me harder, especially since it happened just after I rebooted my portfolio at the beginning of 2020.

However, the frantic pace at work to handle the unprecedented pandemic and the subsequent amazingly quick market recovery made it a less significant event.

The 2022 bear market was particularly painful for me. Although my portfolio only dropped 22% in 2022, it experienced a significant 50% decline from November 2021 to October 2022. The slow recovery has prolonged the pain.

Compare to the two benchmarks SPDR S&P 500 ETF (NYSE: SPY) and SPDR Straits Times Index ETF (SGX: ES3), my portfolio’s performance over the past two years has been disappointing.

The S&P 500 ETF only declined by 25% and surpassed its all-time high since early 2024. Meanwhile, STI ETF avoided a bear market altogether, declining less than 10% for a short period before recovering.

My significant underperformance was primarily due to my holdings in US micro-caps and Singapore REITs. This double exposure exacerbated the impact of the bear market.

Since then, I had made further adjustments to the portfolio and I believe it has become more resilient.

As bad as it might have sounded, it was also during that period that I started to plan for my new experience.

To think about giving up my active income in the midst of a bear market seemed foolish, but the excitement from having a new experience probably motivated me to move forward.

Projection of Impact on Cash Flow, Portfolio and Net Worth

Although I can’t anticipate the timing, severity, or length of the next bear market, my projection is based on historical data and my personal investment journey.

I also recognise that a prolonged market downturn poses a more significant risk to my financial well-being than a brief but steep decline.

Based on these factors, I project a market downturn in 2025 or 2026, with a significant decline of 30% in 2025 followed by another 20% drop in 2026. The recovery will be from 2027, with two consecutive years of strong growth at 20% each.

The chart illustrates that a bear market will be challenging but not catastrophic.

My financial situation is secure after 2026 as I would have access to my OA savings by 2029. But I need to focus on the potential cash shortage in 2027 and 2028, which may cover only three to five months of expenses.

Actionable Steps for a Potential Bear Market

Dear Future Me,

If the projected bear market materialises, consider the following steps:

• Capitalise on the downturn: Allocate up to a third of your OA savings to invest gradually as the market declines. Start when the market drops by 20% and add more after every 10% decline.
• Reduce expenses: During the second year of the bear market, it might be necessary to implement more significant cost-cutting measures. Consider eliminating expensive overseas vacations and bringing forward the plan to downgrade your hospitalisation insurance coverage.
• Diversify your activities: Take a break from the market and explore other opportunities. Consider utilising your SkillsFuture Credits if you have not done so.
• Liquidate if necessary: As a last resort, liquidate part of your portfolio if you need to. There’s no shame that things turned out worse than expected.

So yes, you can survive this bear market.

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