How to prepare for a bear market — defensive portfolio

Bear market — not a question of "if", but "when"

Since 1929, stock markets have experienced over 25 bear markets (declines of 20% or more). On average, a bear market occurs every 5-7 years. If you invest long-term, you'll experience several of them. The question is: will you be prepared for them?

What is a bear market?

A bear market is a stock index decline of at least 20% from its peak. Historical examples:

• 2000-2002 (dot-com bubble): S&P 500 fell 49%
• 2007-2009 (financial crisis): S&P 500 fell 57%
• 2020 (COVID-19): S&P 500 fell 34% in 23 days
• 2022 (inflation + interest rates): S&P 500 fell 25%

Good news: After every bear market, the market recovered losses and established new highs.

Defensive strategies before bear market

1. Diversification — foundation of defensive portfolio

Don't put all your eggs in one basket:

Asset class diversification:

• Stocks (domestic and foreign)
• Government bonds
• Real estate (or REITs)
• Cash / money market instruments
• Gold

Geographic diversification:

• Not just Poland — global ETF (e.g. VWRA) covers 3,000+ companies from 50 countries

2. Asset allocation matched to your profile

Classic defensive portfolios:

Rule: The sooner you need the money, the fewer stocks.

3. Emergency fund — your line of defense

Keep 6-12 months of expenses in cash or in a savings account. Thanks to this, in a bear market:

• You don't have to sell assets at low prices
• You have peace of mind
• You can even buy more at low prices

4. Rebalancing — automatic "buy low, sell high" mechanism

Once a quarter or once a year, restore your portfolio to target allocation:

• If stocks dropped from 60% to 45% of portfolio → buy more stocks
• If bonds grew from 30% to 40% → sell some and buy stocks

This is counter-intuitive, but it works — you buy cheaply what has fallen.

5. Government bonds — stability anchor

In an equity bear market, government bonds (especially EDO inflation-indexed bonds) stabilize the portfolio:

• They don't lose value like stocks
• They generate steady income
• Poland offers attractive retail bonds

6. Gold — portfolio insurance

Historically, gold rises during periods of uncertainty. Allocating 5-10% of portfolio to gold can reduce volatility. Options:

• Gold ETFs (e.g. iShares Physical Gold)
• Bullion gold coins
• "Gold" accounts in Polish banks

Bear market psychology — the most important element

Mistakes investors make in panic

1. Panic selling — you sell at the bottom and realize losses
2. Market timing — "I'll exit now, return at the bottom" (nobody catches the bottom)
3. Checking portfolio every hour — more stress, worse decisions
4. Listening to media — catastrophic headlines sell clicks, don't help investors

Healthy habits in bear market

• Don't check portfolio more than once a month
• Continue regular investing (DCA)
• Remember your plan — why you invest and for how long
• Read market history — every bear market has ended

Bear market action plan — write it NOW

Write your "bear market plan" when markets are calm:

1. My target allocation: ___% stocks, ___% bonds, ___% other
2. My emergency fund: ___ months of expenses
3. When I rebalance: every ___ (quarter/half year/year)
4. What I WON'T do: don't panic sell, don't try timing
5. Extra cash for opportunities: ___ PLN for buying after declines

Historical perspective — loss recovery time

Patience has always paid off.

How Freenance can help

Freenance helps monitor portfolio allocation and automatically calculates your Runway — how many months you can live from owned assets. In a bear market, this information is invaluable: you know you have time and don't need to panic. Track net worth in one place and make rational decisions.

👉 Prepare for bear market with Freenance — freenance.io