Investing for Retirement in a Bear Market

January 25th, 2015  |  Published in Retirement  |  1 Comment

Stock market investors have enjoyed a bull market for quite a few years now. History tells us that there will eventually be another bear market. How you handle your retirement investments during a bear market can make a big difference in the return provided by your retirement investments. Selling at the bottom of a bear market could produce a big loss for your retirement portfolio.

I was lucky that I started investing in earned for retirement during the last bear market in 2008. I didn’t get in right at the bottom, the market did go down for a few more months after I started investing. Despite the few months of negative returns, having bought stocks cheap during the bear market helped me get some great returns once the next bull market started.

Now that I have retirement investments though I need to consider what to do when the next bear market hits.  One strategy is to pull out of the market when the bear market starts to avoid further losses. The problem with that strategy is that nobody really knows when a small dip in the market is the beginning of a bear market or just a temporary correction during a bull market.  It is also impossible to know for sure when a bear market has hit bottom. For this strategy to work you need to be very lucky or be able to tell the future.

Another strategy, which is the strategy I might use, is to just stop investing in the market during the bear market. You would put your money into bonds or cash instead. If you use this strategy you need to figure out when to start investing in the market again. If you wait too long to start investing when the bull market resumes then you miss out on a lot of potential returns.  Or you could just stay fully invested in stocks the whole time and therefore ensure that you don’t miss out on the beginning of the bull market. When it comes to investing in a bear market there is no foolproof strategy. Jumping in and out of the market every time there is a small dip though will likely lead to inferior returns.

  

Responses

  1. John says:

    January 25th, 2015 at 6:06 pm (#)

    Bear markets are when your true will has to shine through. I lost a lot of money on PAPER in 2008, but I stuck with the plan and grew and I am better than I ever was. The key is always time, the longer the amount of time you have you will always be better.