Thank you for joining me for Episode 5 of my NEW Money Wisdom Question Series, where I film answers to common financial and retirement investment questions in 2 minutes or less. Today I want to talk about what to do in a bear market.
What is a Bear Market?
Let’s first talk about what a bear market is. A bear market is simply when the stock market drops from a high, down more than 20%. Now starting in February 2020, of course we had a drop of around 30%, depending on which index you’re measuring. So, we are definitely in a bear market. It has not recovered yet. It’s come back a little bit, but it still looks pretty ugly.
What to Do in A Bear Market:
So, what should you do? Well, there’s a couple of things. First of all, try to resist the instinct to react. You should have some kind of long-term financial plan that acts as your foundation. So, you’re not reacting to short-term market swings. Most of us are not short-term traders. I would discourage you from being a short-term trader. Most short-term traders do not do well. If you try to do that, you could blow up your future retirement savings.
What NOT to Do in A Bear Market:
- Do NOT act on emotion
- Don’t ignore a financial plan if you have one – that should be the foundation of your emotions
- You probably don’t want to sell something and buy something that seems like it did the best in the last year or three years.
Many times, what’s done the best is the most expensive. What’s done the worst, which people don’t want to buy many times, is going to recover. So, you can all think of stocks and industries right now that are just really hurting. Maybe they’ve overshot. Maybe they’ve gone too far. Maybe that’s what you should be buying. Most people wouldn’t buy those stocks. They would buy the ones that are doing the best.
You can see how complicated this gets. The bottom line is be really cautious about investing or selling in a bear market. You probably want to get some outside advice.
Thanks for joining me and I hope you found this information helpful!
P.S. If you enjoyed this topic and want to learn more, get our free retirement guide, “What To Do In A Down Market“.
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