For the first time in years, Wall Street trading recently went into a bear market.
So what exactly is that and what does it mean for investors?
According to Ben Fuchs, of Fuchs Financial, A bear market is when the S&P 500 Index declines more than 20 percent from its one-year highest number. For the NASDAQ, that number is 30 percent. Both the S&P and the NASDAQ tipped into bear territory earlier this summer.
The markets had already been volatile, Ben adds, in part because of ongoing supply-chain fluctuations wrought by the pandemic, inflation and uncertainty in energy markets created by the war in Ukraine.
So, how should investors respond in a bear market?
That depends, Ben says, on what you’re invested in and when you’ll need the money.
“The main thing that most people need to think about is when do you see yourself relying on this money? If it’s not for say, five years, then that’s okay, a bear market isn’t going to affect you much. But if you plan on retiring within 5 years you might want to get a second opinion on what you should be doing with your money.”
For his clients, Ben adds, he carefully reviews their portfolios regularly to make sure their financial goals are lining up, and that kind of review is particularly important during times of market volatility like this.
How to react, he says, will also depend on where you are financially in your life. For someone in their 20s or 30s, a bear market is a great time to buy discounted stocks.
“They should keep contributing to a 401k, keep putting as much as you can into your retirement plan. Stocks are on sale right now. If you’re getting close to retirement then we should get another look at your portfolio and figure out if you have the right mix. Let's go investment-by-investment and make sure we’re not hurting ourselves here. If you are retired and you need your investments to live on, then we really need to take a hard look at what you have in your portfolio. The important thing is to have a plan in place and to do a re-evaluation of that plan. We need to make sure there's a safety net when the market crashes.”
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