What is a bear market? Here’s how it affects your wallet

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Bears and bulls are common animal references used in the stock market, but what does an animal have to do with stocks? Think about how each creature attacks its prey – usually the bull raises its horns up, and the bear reaches its head down. And right now your prey (ie your investment portfolio) is under attack in a downtrend.

Last week, the markets came close to reaching bear market status as the S&P 500 Index is 20% off its all-time high. Specifically, a bear market is when the value of the overall stock market drops 20% or more from its recent highs. The peak was reached at Christmas 2021, but quickly fell in 2022 amid a barrage of rising inflation costs, high interest rates and lackluster earnings reports from major companies.

The last bear market occurred two years ago with the onset of the Covid-19 pandemic and before that, in 2009 during the financial crisis. 2011 and 2018 saw pullbacks close to the bear market as well.

So what should you do with your investments, including one in a 401(k) or Roth IRA, during a bear market? Outline the best ways to weather a bear market and how to continue investing in such economically challenging times.

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Bear Markets: What you need to know

Bear markets can be particularly nerve-wracking, as you watch helplessly as your portfolio slowly declines in value. And because humans are emotionally driven, we are more likely to not make the right decisions in response.

“Investors tend to overreact to bad news,” says Scott Nations, president of financial engineering firm NationsShares and author of “Investors tend to overreact to bad news.”The Anxious Investor: Master the Investing Mind Game. “It is a human tendency that is perhaps evolutionary in nature, since a time when not responding could be an existential risk, and overreaction was relatively inexpensive. But our world has changed and we know it is impossible to tell when the market is going, so to sell because the market has gone down and you think the market will go down further is wrong.”

It turns out that there is also a significant amount of data to back up his claims. According to Hartford Funds, there have been 26 bear markets since 1928, and this is likely the number 27. Each of the 26 bear markets is followed by a bull market, providing solid gains to help offset losses. During bear markets, stocks tend to fall by about 36%. During bull markets, stocks tend to rise by about 114%.

While the bad days are easy to remember, keep in mind that there are more good days out there. in the middle, Bear markets last for an average of 289 days, while bull markets can continue to rise for 991 days. Not only that, some of the S&P 500’s strongest days have already occurred during bear markets, so trying to time the market right can be nearly impossible.

Finally, one of the biggest concerns for stock market investors is the idea of ​​a looming recession. By definition, a recession is two consecutive quarters with declining GDP or GDP. In the first quarter of 2022, we saw a 1.4% decline in GDP – and expectations for the second quarter were mixed. However, a downturn in the stock market is not always an indicator of a recession. Of the 17 bear markets from the Great Recession through 2020, only nine were associated with a recession, according to a report from Invesco.

How to invest during a bear market

As a day investor, you can’t do anything about the stock market or the economy as a whole, so focusing on either won’t do you any favors. However, there are still many things you can do today to help manage your investments in such uncertain times.

Keep investing for the long term

We all love to shop when our favorite stores have sales, now you can buy your favorite stocks, exchange-traded funds (also called ETFs) and Index funds down.

Nations says, “If you’re a long-term investor, you should be cheerful.” “You’ll put money into the business now and regularly during that time and get to buy at a discount. Try to change your perspective. Not all investors will be able to, but it’s useful training.”

Consider investment accounts with tax liens

There are many investment accounts that you can buy stocks in, such as a 401(k), a traditional IRA, a Roth IRA, or a health savings account, also called an HSA. It can give you both of these tax incentives that a regular taxable brokerage account cannot. If you’d like to defer taxes until retirement as you would with a 401(k) or invest for tax-deductible gains as you would with a Roth IRA, consider opening one of these accounts.

Also, if you want to get rid of your investments, consider an automated advisor such as Betterment or Wealthfront. Robo advisors create a diversified portfolio for you based on your risk tolerance, age, investment time horizon, and financial goals. Then the software automatically rebalances your investments over time.

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On the Safe Betterment website

  • Minimum deposit and balance

    The minimum deposit and balance requirements may vary depending on the investment vehicle chosen. For Betterment Digital Investing, the minimum balance is $0; Premium Investing requires a minimum balance of $100,000

  • Outlay

    Fees may vary depending on the investment vehicle chosen. For Betterment Digital Investing, 0.25% of your funds balance as annual account fee; The premium investment fee is 0.40% per annum

  • bonus

    Up to one year of free management service with a qualifying deposit within 45 days of signing up. Valid only for new single investment accounts with Betterment LLC

  • investment vehicles

  • investment options

    Stocks, Bonds, ETFs, and Cash

  • unexpected events

    Betterment RetireGuide™ helps users plan for retirement

Positives

  • Minimum deposit 0 dollars
  • No trading or transfer fees
  • Good for automated investment
  • Customize user portfolios around their financial goals, schedule and risk tolerance
  • Users can set specific investment goals (short and long term) for each portfolio and invest using different strategies (risk less and more)
  • Creating an account is quick and easy
  • Able to sync external retirement accounts with Betterment retirement goal so all your accounts are in one place
  • Premium plan users get unlimited access to a financial advisor (otherwise, one-time advisor advice costs $199 to $299)
  • Advanced features include automatic rebalancing, tax saving strategies, and socially responsible investing
  • Betterment RetireGuide™ helps users plan for retirement

Negatives

  • 0.25% annual account fee
  • 0.40% annual account fee for the upgraded premium plan
  • Premium plan requires $100,000 minimum balance

forefront

  • Fees / Commissions

  • Minimum account

  • investment options

    Stocks, Bonds, ETFs, Mutual Funds, Options, and CDs

Positives

  • Excellent customer service
  • One of the biggest ETFs and Mutual Fund offerings around
  • A large number of mutual funds without fees

Negatives

  • $20 annual fee for IRAs and brokerage accounts, although investors can waive this fee by opting for paperless statements
  • Basic trading platform only
  • No powerful research and data tools

Fidelity Investments

  • Minimum deposit and balance

    The minimum deposit and balance requirements may vary depending on the investment vehicle chosen. There is no minimum to open a Fidelity Go account, but a minimum balance of $10 for robo-advisor to start investing. Minimum $25,000 balance for custom planning and advice

  • Outlay

    Fees may vary depending on the investment vehicle chosen. No commission on stocks, ETFs, options trading and some mutual funds; Zero transaction fees for more than 3,400 mutual funds; $0.65 per options contract. Fidelity Go is free for balances under $10,000 (after $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity’s custom consulting and planning fee is 0.50%

  • bonus

  • investment vehicles

    Android advisor: Fidelity Go® and Fidelity® Planning and personal advice Irish Republican Army: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and Trading: Trade Fidelity Investments else: Fidelity Investments 529 College Savings; HSA . fidelity®

  • investment options

    Stocks, bonds, ETFs, mutual funds, CDs, options, and fractional stocks

  • unexpected events

    Extensive tools and in-depth, industry-leading research from over 20 independent providers

Positives

  • No commission on stocks, ETFs, options trading
  • No transaction fees for over 3,400 mutual funds
  • Robo-Advisor Fidelity Go (Free for balances under $10,000)
  • Fidelity Hybrid Robot Service Personal Planning and Advice
  • $100 offer for a limited time
  • Abundant educational resources and tools
  • 24/7 customer service
  • More than 100 physical branches across the United States for direct support

Negatives

  • Fidelity Go’s fee is $3 per month for balances between $10,000 and $4,999; 0.35% for balances over $50,000
  • Dedicated Fidelity Planning and Advice requires a $25,000 minimum balance and has a 0.50% advisory fee
  • Some Fidelity mutual funds require specific thresholds to be reached
  • Reports of platform outages during busy trading days

If you want to be a bit of an active investor, consider ETFs

ETFs are groups of individual stocks that track specific indices of companies or sectors. This can be a great tool if you want to avoid picking individual stocks, which can be a high-risk strategy.

Armando Cargi, president of iShares Investment Strategy Americas, says investing in commodities can also be beneficial. “To protect your portfolio from high inflation, we like ETFs with exposure to a wide basket of commodities,” explains Karjee.

However, if you prefer buying and selling shares regularly, consider the tax implications that come with this.

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Editorial note: The opinions, analyses, reviews or recommendations contained in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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