If a Bear Market Is Coming, Here's What All of the Smartest Investors Are Doing Right Now

With great certainty, I can say there will be a bear market. What I can't tell you is when, though I expect one sooner than later. Right now, with the market trading near all-time highs, investors appear to be shrugging off a lot of bad news. Even JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon has been offering warnings about the increasing risk of a downturn, so I'm not going out on a limb here. But if there is a bear market ahead, now or in a more distant future, the smartest investors prepare before the inevitable downturn.

Fear is your biggest enemy

I've lived through numerous bear markets, including the very deep dot-com crash and the Great Recession, when there were legitimate concerns about the stability of the global financial system. When stock prices fall day after day, week after week, month after month, and year after year, it is hard not to panic. You are watching your wealth slip away little by little and, at some point, you feel like you need to stop the bleeding before you lose it all.

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There are no free lunches on Wall Street, as the old saying goes. You have to take the good with the bad. And bear markets are part of that story, but, historically, they've always been followed by new bull markets. You may feel like the bleeding will never stop, but history says it will. And that the market will eventually post even higher highs.

^SPX data by YCharts

So the big thing you need to do is remember the history, so you have the wherewithal not to panic and follow the crowd. A really simple approach is to buy a low-cost S&P 500 index fund, such as Vanguard S&P 500 ETF (NYSEMKT: VOO) and its 0.03% expense ratio, and just keep buying. Right through the downturn, as well, since you'll be able to buy more shares of the exchange-traded fund (ETF) while they are cheap. That's known as dollar-cost averaging, and it can be a very powerful wealth-creation tool.

Step back on the risk

Another smart move is to reduce the risks you are carrying if you prefer to buy individual stocks. For example, you could trim your stake in a high-flying technology stock like Nvidia (NASDAQ: NVDA) and use the proceeds to diversify into a boring consumer-staples Dividend King like Procter & Gamble (NYSE: PG) or a utility Dividend King like Black Hills (NYSE: BKH). With over 50 annual dividend increases, these companies have proven that their reliable businesses can survive tough times. And you can watch your dividend checks roll in instead of focusing on the falling market.

JPMorgan Chase is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has positions in Black Hills and Procter & Gamble. The Motley Fool has positions in and recommends JPMorgan Chase, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.