What Happens to Illiquid Investments in a Bear Market

TL;DR: A public-markets prep plan is not a plan for a fund you can't exit. I say that because I spent years signing off submarine work nobody could redo once the boat dove, and that taught me to check the fine print before trusting the calm.

What was reported

David Dierking published a piece via The Motley Fool on Yahoo Finance on September 26, 2026. His claim is plain: a bear market is coming eventually, and his own prep is modest. "Investors haven't had to deal with much market turmoil over the past several years," the piece states. "The last real 'shock' was the 2022 bear market." His conclusion isn't to raise cash or exit the market. It's that "changes to your portfolio should involve tweaks, not 180-degree turns."

That's a public-markets framing, built for someone with an index fund and a brokerage account. It says nothing about private equity, venture, real estate syndications, or a self-directed IRA holding illiquid assets. For an accredited investor, the same news raises a harder question.

What happens to illiquid investments in a bear market?

A public-markets investor who can sit through a decline can also, mechanically, sell on a bad day and buy back on a good one. You can't do that with capital committed to a fund with a lockup. That's the distinction the Motley Fool piece doesn't have to address. You do.

Downside first means looking at how you lose before how you gain. With a locked-up fund, part of the loss is that you can't sell it at all, so any cash you need in a downturn has to come from somewhere else in your portfolio.

Event	Peak-to-trough decline	Recovery	Source
Late 2018	20%	Recovered by spring 2019	Motley Fool via Yahoo Finance

A 20% correction that recovered by spring 2019 is a very different event than a decline that takes much longer to come back. Your illiquid holdings don't get to "wait it out" the way a public index fund does. If you're forced to sell something to raise cash mid-downturn, sell the asset you chose to make liquid, not the one you can't touch until the fund winds down.

Does market timing actually cost investors money?

Selling into a decline turns a paper loss into a permanent one, and buying back after the recovery has started locks that loss in. That's true for a public index fund, and it's worse for an illiquid holding, where you can't undo the decision at all.

A separate outlook published on truscomgmt.com takes the more optimistic side of the same argument, forecasting the S&P 500 moving "toward 8,450 over the next 12 months" and citing "limited recession risk" heading into 2027. The bearish case says a downturn is inevitable eventually; the bullish case says the next twelve months look fine. Both can be true at once, because they answer different questions: whether a bear market ever comes, and when. That is the reason I'd prepare the structure of a portfolio rather than try to call the top.

What should I actually do before the next downturn?

Access is not an edge. Judgment is. The Motley Fool piece is written for someone whose only move is to hold or sell shares that trade every day. You don't have that option once capital is committed to a private fund, so the discipline has to happen before you commit, not during the decline. Size the check against an illiquidity budget built for a real downturn, not the mild one investors have gotten used to since 2022.

Common mistakes

• Treating a bear market as a public-markets event only. A 401(k) can be rebalanced in an afternoon. A capital call on a private fund cannot be paused because the S&P 500 is down.
• Sizing illiquid allocations off a bull-market balance sheet. Use the framework in how much to allocate to alternative investments before, not after, a downturn narrows your options.
• Assuming secondaries liquidity will be there when you need it. See how LPs actually use the secondaries market for how that route works and what it can cost.
• Taking the sponsor's track record on faith. Verify before you trust: ask what happened to distributions and capital calls the last time the market moved 20% or more, not just what the projected return looks like today.
• Confusing a forecast with a fact. No source here, bearish or bullish, can tell you when the next decline starts. Plan the structure, not the timing.

FAQ

Is 2026 going to be a bear market? An investing outlook published on truscomgmt.com forecasts continued growth and "limited recession risk", while the Motley Fool piece argues a bear market is inevitable eventually, without a timeline. Plan for uncertainty, not a specific year.

Is a market crash coming in 2026? No cited source predicts a crash on a specific date. The Motley Fool piece says a bear market will come eventually and that portfolio changes should be tweaks, not 180-degree turns. That argues for a standing plan over a prediction.

How bad was the last market correction? According to the Motley Fool piece, a mini-bear market in late 2018 took 20% off the S&P 500 and was completely recovered by spring 2019. The same piece names 2022 as the last real shock.

The Bottom Line

A bear market is coming eventually. What decides whether it costs you money is whether your illiquid capital was sized for a real decline before the decline started. Size the check before you sign, not after the market moves.

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Educational content only. Not investment, tax, or legal advice. Not an offer or solicitation to buy or sell securities. Past performance does not guarantee future results. Private-market investments are illiquid and involve risk of loss, including total loss of capital. Consult qualified advisers. Angel Investors Network is not a broker-dealer or investment adviser.