When discussing the market, the terms “bear” and “bull,” “correction” and “bubble” will invariably come up in the conversation. What this all basically means is that worldwide markets are ever-changing and always volatile. Even when they seem stable, there’s a good chance a bear is stalking in the background or a bull is waiting to charge to the forefront. The best way to prepare for these events is to know what you’re doing: knowledge is power when it comes to investing.
So what exactly is a “bear” market? It is generally defined as a decline in stocks of at least twenty percent from their peaks. If stocks fall ten percent, that’s considered a correction. While no one likes to see the terms “fall” and “decline” associated with stock prices, it does happen.
But it doesn’t have to be a calamity, especially when investing in your retirement, if you take a few steps to protect yourself. There are sound strategies you can implore to secure your retirement investing in a bear market.
Follow the bouncing portfolio
Sitting helplessly while your portfolio bounces all over the place isn’t fun at any age, but it is especially nerve-wracking if you’re looking at upcoming retirement or you’ve just collected your gold watch. Don’t rush to hit the panic button. Retiring into a bear market isn’t the end of the world. All it takes is a little foresight and some adjusting.
A bear market requires some tweaking to your portfolio. This doesn’t mean to start dumping stocks and exiting the market forever. If you bail out and never get back into the market, you may miss a lot of growth opportunities. Take a breath, relax and arrange for some face time with your financial adviser.
Pick your strategy
When your retirement is caught in a bear market, keep in mind that returns garnered in a bear market can be difficult to recover from, but not impossible. It all depends on how you go about surviving it.
Have a plan. That’s paramount to any hope of coming out of the bear market with your retirement intact. Consider easing back on your stocks, at least for a short-term, as you transition into your retirement. Even going to an extremely conservative stance, such as a 70% bonds/30% stock ratio in your portfolio could minimize the effects of any market crashes. You can also go back and increase your stock percentage as the market changes. This can go a long way toward ensuring that your nest egg continues to build.
Pick your poison
When the markets get choppy, pick and choose which stocks to hold on to. Generally, high-quality stocks hold their value better in a bear market than do speculative choices. Turn your eye toward companies with a record of stable earnings, that carry low debt, and have a history of delivering returns to shareholders regardless of market standings. If you’re tapping into your portfolio for retirement income, look at dividend payers as a way to defeat the bear market.
Don’t forget to fuel up on high-end bonds, either. These can provide some ballast to your bouncing portfolio when the bear is running through your retirement.