If a Bear Market Is Coming, Here's Exactly How I'm Preparing My Investment Portfolio

According to some in the academic world, Wall Street is efficient. If you actually invest, however, you know that investors, as a group, are prone to short-term thinking and a get-rich-quick mentality. That highly irrational approach can lead the market to excesses on both the upside and the downside.

Wall Street has spent years heading higher, driven largely by technology stocks, but now investors are worried that new tech like artificial intelligence (AI) won't live up to expectations. If that's true, a bear market could be on the way. I'm preparing my portfolio by focusing on the same basics I always have: owning reliable dividend-paying stocks.

Image source: Getty Images.

I'm conservative by nature

To be honest, technology stocks aren't all that interesting to me. I own IBM (NYSE: IBM) and Texas Instruments (NASDAQ: TXN), both of which are industry bellwethers with impressive dividend track records. However, I bought each one while they were out of favor. The rest of my portfolio is focused on income-oriented sectors with reliable customer bases, such as utilities, real estate investment trusts (REITs), and consumer staples businesses. I own industry leaders like ute Southern Company (NYSE: SO), REIT Realty Income (NYSE: O), and consumer product maker Procter & Gamble (NYSE: PG).

As I look at the market today, fearing a downturn on the horizon, I'm paying extra attention to my core investment tenet: safety first. I don't want to make giant shifts; that's an emotional decision that will likely work against me over the long term. I want to stick to the core, and over the last month it appears that more and more investors are coming around to my conservative way of thinking. As the chart below highlights, the S&P 500 index (SNPINDEX: ^GSPC) has struggled, while utilities and consumer staples stocks have rallied. REITs have treaded water, but continue to provide a well-above-market yield.

VNQ data by YCharts

Sectors go in and out of favor all the time, so I'm not expecting this trend to be permanent. But I consider the shifts taking shape a confirmation of the validity of my long-term approach. That helps me stay the course during periods of volatility.

You can't avoid bear markets

That said, when there's a bear market, everything tends to fall at once. So I know I can't avoid the impact of a deep downturn. However, I can do my best to soften the blow. And that's what sticking to my reliable dividend-paying stocks in boring sectors like utilities, consumer staples, and REITs lets me do.

To be fair, I was reminding myself of my safety-first income focus while I was being left behind during the tech-driven bull market, too. But now, as that bull market seems at risk, it is even more important for me to stick to my core, long-term investing tenets. Which really means that I'm not changing much at all about my portfolio right now. If you invest as I do, you should probably do the same.

Reuben Gregg Brewer has positions in International Business Machines, Procter & Gamble, Realty Income, Southern Company , and Texas Instruments. The Motley Fool has positions in and recommends International Business Machines, Realty Income, and Texas Instruments. The Motley Fool has a disclosure policy.