It can be demoralizing for an investor who’s been saving for retirement for decades to see the value of their nest egg plummet by hundreds of thousands of dollars due to a bear market. Rather than fall into despair or make impulsive decisions, Ashley Kilroy via SmartAsset advises that investors should adopt a long-term investment mindset and strategy when saving for retirement.
When the market plummets, investors should resist the impulse to sell, since doing so will only make these losses permanent. By keeping calm and investing on, these assets will rise again when the market inevitably turns.
While it can feel heartbreaking for an investor to open their retirement account and see their investments decimated, it doesn’t necessarily mean the end. After all, bear markets eventually turn bullish over the long haul.
Bear markets are also a good time for investors to reassess their financial goals, time horizon, and risk tolerance. Buying bonds instead of stocks, for example, it may be a good idea if retirement is approaching or an investor has a child starting college. It’s also crucial for investors to regularly assess their risk tolerance. While a portfolio’s value will always fluctuate, investing according to one’s preferences instead of outside pressures will mitigate stress during a market downturn.
Since the market’s overall trajectory is upward, a market downturn is no reason to stop investing in the short term. Continuing to put the same amount of money into an investment account every two to four weeks provides the opportunity to buy into the market when stock prices are lower and receive strong returns when the market recovers.
It’s also always a good idea to diversify, which helps protect the portfolio from market volatility. While stock prices may fall during a bear market, consumers often make a lot of the same purchases, so investing in consumer staples (companies that sell food, toilet paper, gasoline, and dish soap) can lead to better results than buying shares of consumer discretionaries (companies that sell luxury goods).
“While a market downturn will most likely take a chunk out of your investment account, your response to a bear market is critical in keeping your investments going,” wrote Kilroy. “Instead of panic-selling that results in further loss, you can adopt the long-term strategy and reallocate your assets based on your financial goals and timeline. Also, remember, the market has always rebounded from past downturns.”
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