The bull market has given way to a bear market. Don’t panic. Here’s what to do.
You may have heard a lot of recent buzz in the media about bear markets. What is a bear market and what does it mean for you? A bear market is popularly defined as a condition in which securities prices fall 20% or more from recent highs amid widespread market pessimism and negativity from investors. The stock market and related investments lose value and go into a slump. This could mean your IRA or 401k has lost some value. If you own stocks, they may have gone down in value as well.
In the past few months, the securities market has experienced the most volatility since the 2008 recession. Fortunately, the market and economy rebounded from the 2008 crisis, as well as the 2000 dot-com bust before that, and the 1987 stock market crash before that. History has shown us that in the past, bear markets didn’t last forever. If the past is any indication, there is reason to be cautiously optimistic about the future. But as always, past market performance is no guarantee of future results.
So what should you do in a bear market? Here are some tips to make the best of a bad situation.
1. Don’t panic. Financial moves should be made on long term analytical data and planning, not knee-jerk emotional reactions. If you have a financial advisor, you should speak with them and seek professional advice. They may have insights that can help you plan your finances with a level head.
2. Re-evaluate your tolerance for risk. Depending on where you are in your financial life journey, the market downturn may be an unpleasant reminder that your risk tolerance may change as you get older. Younger investors may find that they’re willing to be a more aggressive investor. Over the course of a lifetime, a younger investor has more time to recover from a slump or a setback. The closer one gets to retirement, however, the more important it may be to change one’s portfolio to investments that have more stability.
3. Wait. If you own stocks or other securities-based investments like a 401k that experience a drop in value when the market turns sour, it’s too late to liquidate them into cash. The damage may already be done. If so, cashing out won’t give them a chance to grow in value if the market turns around. Sometimes your best bet may be to just wait out the slump.
4. Buy low. When the market is in a slump, securities trade at lower prices. If the market starts rising, you could end up with big gains by buying while prices are lower. If you’ve been thinking about investing in securities but haven’t yet, it might be an opportunistic time to get in. If you have a 401k or IRA, consider increasing your contributions when the market is low to potentially get more for your money should the markets turn around.
Watching your retirement accounts decrease in value, and seeing your stocks go down can be a disheartening experience. It’s important to keep it all in perspective. Don’t panic. Make sound decisions for the long-term, keep calm and carry on.
To get more information about investments, consult a Wealth Management specialist today.
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