- Have around five years worth of cash equivalents available—to endure a prolonged bear market without being forced to sell anything. When I first encountered that piece of advice, from Jane Bryant Quinn, I thought it was excessively, ridiculously cautious. But now I believe that the older you are, the more precarious your sources of income, the more sense it makes.
- Don’t panic and sell when the market swoons. But if you don’t have enough in cash, perhaps you should sell a little…gradually. To suffer a steep loss now may be preferable to suffering an even steeper loss later.
- Exchange losers. I sold A and bought A1. I was shocked to see how much of a loss I had sustained in A (in my taxable account) in just a month or so. So I sold A, nailed down the tax deduction, and bought something very similar but not “substantially identical.” I ate my cake and had it. Okay, I don’t feel very patriotic, stiffing Uncle Sam like that; but Uncle Sam helped get us into this mess, so maybe Uncle Sam should share a little of my pain.
- Have a favorites’ list. Stocks you would love to buy if the whole market came crashing down. (A favorite of mine is JNJ.) Continuing to dollar-cost-average into mutual funds in a bear market requires a plentiful supply of courage. If you buy something that you are pretty sure is among the best of the best, you need considerably less courage.
- Don’t believe those people who joyously tell you that this is the buying opportunity of a lifetime. That’s what they were saying in 1929. Okay, it may well be a great time to buy. But I wouldn’t bet the ranch. People who never bet the ranch never lose the ranch.