Smart Investors Prepare for a Downturn

With the market trading near all-time highs, investors are shrugging off bad news and ignoring warnings about an impending bear market. Jamie Dimon, CEO of JPMorgan Chase (JPM +0.01%), has been vocal about the increasing risk of a downturn.

The smartest investors prepare for a bear market by not panicking, despite watching their wealth slip away. History shows that bear markets are followed by new bull markets, and that the market will eventually post even higher highs.

A simple approach to weathering a downturn is to buy a low-cost S&P 500 index fund, such as Vanguard S&P 500 ETF (VOO +0.39%), which has an expense ratio of just 0.03%. This strategy is called dollar-cost averaging and can be a powerful wealth-creation tool.

Another smart move is to reduce risk by trimming high-flying stocks like Nvidia (NVDA -0.98%) and investing in dividend-paying companies like Procter & Gamble (PG +1.20%) or Black Hills (BKH -2.18%). These companies have proven their ability to survive tough times.