If you’ve been investing since 2020, you’ve already been through two bear markets — a brief one in early 2020 during the initial outbreak of the COVID-19 pandemic and another in 2022 as investors fretted about rising interest rates and high inflation.
Fair warning, there will be more. Long-term investors should expect to experience roughly a dozen or more during a lifetime based on the market’s last 100 years.
Successfully navigating a bear market depends on where you are in your investing journey. Here’s what you should know about how to survive a bear market at any stage of your investing life — whether you’re in your 20s and just starting to save for retirement, already retired or anywhere in between.
A bear market is generally defined as a 20 percent decline from a recent high. Since 1928, the S&P 500 (a proxy for the U.S. stock market) has gone through a bear market about every 3.5 years, and the average bear market lasted an average of 9.6 months, according to Hartford Funds research.
How to survive a bear market in your 20s and 30s
If you’re saving and investing for a long-term goal such as retirement, a bear market during your 20s or 30s can be used to your advantage. But you’ll first want to make sure that you can comfortably capitalize on the situation.
- Set aside cash so you don’t have to tap your retirement savings: Bear markets often coincide with some amount of economic difficulty, either a slowdown or a recession, which may lead to job losses for some workers. Having an adequate cash cushion in an emergency fund will save you from having to sell investments at a loss if you need money to cover expenses. If you do have to raid a retirement account for an emergency, a Roth IRA is a better choice than dipping into a traditional IRA, because you can withdraw your contributions (not earnings) at any time for any reason without paying taxes or penalties.
- Don’t tap the brakes: No one knows exactly how long a bear market will last. But if you’re investing for retirement, at this point, you still have decades to recover from temporary losses. If you’re already contributing to a workplace retirement plan such as a 401(k), then you’ll benefit from the lower prices as you make consistent purchases through the plan.
- Take advantage of fire-sale prices: Any additional contributions you can make to your workplace plan or another retirement account (such as a traditional or Roth IRA) while stock prices are in decline buys you shares at more attractive prices.
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How to survive a bear market in your 40s and 50s
As you move from the early part of your career to the middle and you get closer to your retirement savings goals, seeing your portfolio value fall by 20 percent or more in a bear market can feel like an insurmountable setback.
Time is still on your side at this age. If you’re planning to stay in the workforce until you reach a normal retirement age of about 65 years old, you have 10 or 15 years to ride out today’s losses and still reach your savings goals.
- Don’t let emotions drive your investment decisions: Try not to panic and rush to move savings out of stocks in an attempt to time the market. That strategy is likely not what got you to where you are today and only serves to lock in your losses. Plus, when the market starts to rebound — which typically happens quickly — you’ll miss out miss out on the initial upswing and have to scramble to get reinvested.
- Adjust your allocation if necessary: Your portfolio allocation should shift gradually away from riskier assets, such as stocks, the closer you get to retirement, and toward fixed-income assets such as bonds. If you haven’t made that shift already, a bear market could be a little wake-up call to start making that change.
- Be opportunistic: Just as in your 20s and 30s, there’s also an opportunity to take advantage of the downturn by boosting your contributions to retirement accounts. (If you’re 50 or older, take advantage of catch-up contributions, which allows you to save an additional $7,500 in an employer-sponsored retirement plan and an extra $1,000 in an IRA.) Lower prices typically mean higher expected returns going forward, so contributing more money during a bear market can help to more than make up for what you’ve lost recently.
How to survive a bear market in your 60s or during retirement
Bear markets are challenging no matter when they come, but they can be particularly unsettling if you are about to retire or already have.
When you’re working, you have regular income coming in from your job that can help soften the blow of a declining market. But once you’ve retired, you’re relying on that portfolio for your income. To ease the financial and psychological toll during a bear market:
- Fortify your cash cushion: One way to lessen the impact of a bear market during retirement is to make sure you’re holding a portion of your overall portfolio in cash or investments considered very safe, such as money-market funds or government bond funds.
- Draw income from less volatile assets: If you can, make withdrawals from these safer assets during a bear market to avoid locking in losses you’re experiencing in the stock market. Once the market has recovered, you can resume withdrawals from stocks and start to replenish the investments in safer assets.
- Postpone non-essential purchases: Reducing your spending as much as you can during a bear market will allow you to withdraw less money from your portfolio when prices are down. Cutting spending isn’t easy, but it may help you sleep better and get you through a period of high volatility.
- Re-assess your risk tolerance: If you find that the bear market is hitting your portfolio particularly hard, it may also make sense to review your overall asset allocation. People who are close to or in retirement should have more of their investments in low-risk assets and less in riskier options, such as stocks. If you find you have too much allocated to stocks, it may make sense to reduce your exposure, even if it means locking in losses.
- Call in the experts: Hiring a financial advisor — either for a one-time second opinion or an ongoing engagement — can help as you navigate through a rough patch. Good financial advisors can suggest ways to lessen the impact of future market downturns.
Bottom line
Bear markets are a normal part of investing, so they shouldn’t come as a surprise. Once you realize that you’re in one, they may actually be close to being over, so do your best not to make any panicked decisions. Maintain a long-term mindset if you’re at the beginning or mid-point of your career and remember that volatility is part of investing in stocks.
If you’re already retired or close to it, focus on making withdrawals from cash-like investments and consider reviewing your portfolio allocations to see if you have too much exposure to stocks. If you’re still feeling uneasy, it may be worth it to consult with a financial advisor, who can help you devise a strategy based on your individual needs and time horizon.
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