What Is a Bear Market?
The Nasdaq, which includes big tech companies such as Apple and Microsoft, fell into bear market territory in late Friday trading, signifying a loss of 20 percent or more from its peak. The Wall Street Journal explains this “with a number of concerns, ranging from the pace of interest rate hikes by the Federal Reserve to the health of the US economy and impending government shutdowns.”
The Dow Jones and S&P 500 are also declining, but not quite to the bear market level yet. According to Reuters , the Russell 2000 and the S&P 600 small-cap index have confirmed that they have been in bearish territory in the past few days. If stocks fall 20 percent this year, it would end the longest-running bull market in history , which began during the Great Recession.
According to the New York Times , there have been only two bear markets over the past two decades: one in 2000, coinciding with the dotcom crash, and one with the 2007 financial crisis (which most of us probably remember).
According to Reuters , the Nasdaq rose “more than 539 percent from its lowest since the March 9, 2009 financial crisis. Taking into account the reinvested dividends, it brought in a total profit of over 611 percent during this time. ” Even with this decline, it is still 400 percent above its 2009 low.
For the average retail investor – people like you and me – I advise you not to panic. You want the money to stay invested. But as soon as a bear market begins, people tend to do the opposite: panic selling intensifies, which only makes the bear angry.
If you are nervous about what the bear market means in the future, bet on building up your cash reserves . But remember, this is potentially an even better time to buy in the market, as I wrote earlier :
If you’re young and invest mostly through 401 (k), don’t think of it as a trading account that is losing money, suggests Kevin Dixon, Senior Market Analyst at Market Traders Institute . Think of it as your “bird house” where you can buy cheaper stocks. “You are using the concept of cost averaging,” says Dixon. “You buy up and down.”
Historically, bear markets have lasted less than two years , while bulls have lasted much longer. “If the market starts to crash, this volatility is an opportunity that you only get every seven to ten years,” says Dixon.
Older investors close to retirement should take this as a sign that their investments need to be raised. “If you’re investing for a short-term purpose, it might be time to start leaving the stock market – as a rule, you don’t want to invest in stocks if you need money in three years or less. “Andrea Coombs, investment and pension specialist at Nerdwallet , told me a few months ago.
And turn off (or turn off) anything that causes you pressing stress or anxiety. Yes, you need to be aware, but hesitation is normal. Here are some of Kiplinger’s assurances:
A 15 percent drop in the market does not mean that you will lose all your money. Do not call your broker in a panic for fear that you have lost all your money. A market drop of 20 percent in a month does not mean that in another four months you will lose everything. Markets rise and markets fall. Investors tend to think that the current environment will last forever (or at least for the foreseeable future). Bull markets will never top and bear markets will never come back up. Do yourself and your representative a favor and don’t think so. It will only drive you crazy. Bear markets follow bulls and bulls follow bears. It has always been and always will be.
Review your retirement plan and investment goals, see if you are on the right track and what the bear market will mean for your goals specifically, then take action.