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When Tanya Trevett got divorced in 2019, she didn't just become a single mother of three. She also became the manager of her own money for the first time ever.
The author and mental health advocate based in Boston began investing on her own in 2020 and really got into the groove that spring — right around when COVID-19 hit the U.S. and stocks crashed before recovering rapidly. She bought shares of two biotechnology companies she was interested in, Organogenesis Holdings and Agenus, and mostly invests in a diversified portfolio across sectors and company sizes. Last year, when the stock market hit record high after record high, Trevett's stock portfolio was up as much as 20%. She felt "on top of the world."
Today, it's a different story.
First bear market for new investors
Stocks entered a bear market in June, and investors experiencing their first major downturn are especially likely to be feeling the pain. The S&P 500 — a benchmark commonly used to measure how stocks are doing overall — is down around 20% for the year, and shares of companies riding high during the pandemic like Amazon, Zoom and Peloton are down 33%, 35% and 70% for the year, respectively.
It's hard not to panic when you see your account dwindling, Trevett, 52, admits. Her hands get sweaty just thinking about her balance shrinking.
"There's a gut feeling of 'Oh my god, I just lost all my money and how am I going to support my kids? What if it keeps going down and I can't pay my mortgage?'," she says. "It's scary, especially when you read all the headlines and the doom and gloom about a bear market."
Of course, you don't actually lose any money until you sell, but Trevett isn't alone in her fear.
During the first year of the pandemic, newbies across the country flocked to the market, pouring in billions of dollars as stock prices appeared to only go up. People as young as high schoolers embraced investing as a hobby thanks in part to popular trading accounts like Robinhood and fractional shares, which allow people to invest in their favorite companies for as little as $1. Excited new investors couldn't get enough of risk assets like cryptocurrency (even taking to dating apps to discuss), options trading and SPACs.
The fervor initially made sense since prices kept rising, buoyed by stimulus money from the government and near-zero interest rates. Besides, people were eager for something, anything, to do while everyone was stuck at home.
Those investors were in for a rude awakening. After hitting a peak this past January, financial markets have come tumbling down, much in part to the Federal Reserve hiking interest rates, most recently implementing the biggest rate increase since 1994.
For investors who started putting money into the markets during the pandemic, this is the first time they're seeing their investment accounts really take a hit. Understandably, it's scary.
“The first bear market that you go through as an investor will shape you for the rest of your investing life,” says Liz Young, head of investment strategy at the digital personal finance company SoFi. "You will never forget how it happened, how much money you lost, and you will probably learn more in this time than in a lot of future times."
For many investors, it's hard to see the silver lining of lessons learned when your portfolio is tanked. Money talked to new investors about what it's like experiencing their first bear market and how they're trying to remain composed when stocks are going haywire.
'Trying not to freak out' as stocks fall
After years in which it appeared the stock market could do no wrong, it's fair to rethink investing now. Keimani Woods, 30, started investing in 2021, and her balance is down around 16% for 2022. Although she's "trying not to freak out too much about it," it does make her slightly hesitant to invest more money now, even though she knows that, with prices low, it's a good opportunity to do so.
The trick, she says, is to think about the big picture and maintain perspective. That way, when she gets nervous about seeing her account balance down, she can keep in mind that bear markets are actually pretty cyclical. In other words, they're common and to be expected: There have been 14 bear markets prior to this once since World War II, according to Bespoke Investment Group.
"It's a lot to realize the money you've invested went down that much, but the time we’re going into — with being in a bear market and probably entering a recession soon — this is something that has happened before," she reminds herself. "This isn’t the first bear market. This isn’t the first recession."
Plus, Woods, who works as a program director for a wealth management firm in Woodstock, Georgia, feels a bit more confident in her portfolio since the $14,000 she invested isn't money she'll need anytime soon.
Her strategy is in line with what tons of financial advisors recommend: Don't invest money that you'll need in the near future, like if expenses for college or a wedding are coming up soon. Instead, they say to build up an emergency fund of three to six months, pay off high-interest debt like your credit card balance and invest with a long-term view.
A long-term investing approach wins
One of the biggest lessons investors can take away from this bear market is that no trend lasts forever, Young says.
Ted Zhang learned this the hard way. The 21-year-old rising senior at the College of William and Mary got swept up in what he calls the "SPAC euphoria." Special Purpose Acquisition Companies — commonly called SPACs or “blank check” shell corporations — are a way for companies to go public without having to go through the traditional IPO process. Their popularity exploded during the pandemic as investors went on the hunt for one of the next soon-to-be giants in business.
One day in the summer of 2020, Zhang made $20 trading stock in the aerospace company Boeing stock. It got him hooked. He then invested around $8,000 he had earned working for DoorDash and UberEats in individual stocks, cryptocurrency and SPACs. After contributing $12,000 more, Zhang watched his portfolio grow to as much as $130,000. But alongside other risky investments like cryptocurrency, SPACs plummeted during the market downturn as investors looked to take some of that risk off the table.
Across all the assets Zhang invests in, he's down around 50% from his portfolio's highest point.
"Ever since, I’ve been really strict on my rules and principles," says Zhang, who is an active trader and does technical analysis of the investments he buys and sells anything that drops below 7%. He's also still up around 200% overall from his initial investment.
Getting caught up in hype like people did with SPACs isn't uncommon. There's even a name for it: recency bias, which is when investors favor more recent events instead of factoring in how trends play out in a historical sense.
"People kind of got caught up on the momentum of things and the trend of things," Young says. "There's always a reversal point."
That's why it's so important to have a sound, long-term approach to investing, instead of trying to buy the dip or predict the next big thing in the markets.
"No matter what kind of stocks you buy and no matter how much you believe in them, nothing is immune to an environment like this," Young says. So don't become infatuated with your stocks or any trending investing scheme, she adds. "If you fall in love with the prospect of something and ignore the environment surrounding it that could have risks, you're going to get hurt."
It can be difficult for investors — new ones, especially — to keep their emotions on the side and avoid reacting rashly to the latest bumps in the market. But this is the kind of discipline that helps you become a good long-term investor. Young stresses that it's essential to always maintain an objective and data-driven viewpoint.
Every investor experiences market downturns differently, so it's important to figure out how you can best remain calm and stay focused on your long-term plan. For Trevett, learning to not obsessively check her account balance has been crucial to her mental health.
"Don’t open it because you’ll panic and you’ll want to sell,” she advises other new investors. "Just remember what your long-term goals are."