bear market is back, ripping apart your 401(k) and
perhaps disturbing your dreams for the future.
who promised themselves they would never let their money
be devastated again after the last bear market in 2008
find themselves again with losses now that stocks
worldwide have gone into a bear market. Thatís a 20
percent decline in the MSCI All-Country World Index,
which contains U.S. stocks as well as those from
throughout the world.
you have an international or global stock mutual fund in
your 401(k) or IRA, itís probably behaving a lot like
losses you may see now and the bear market label can be
frightening. But the label doesnít actually provide a
lot of information to people trying to figure out what
to do with their money. The bear label simply tells you
that if you have money in stocks around the world, you
probably have lost about 20 percent at this point in
those investments. It doesnít guarantee that stocks
will fall a lot more and leave you with worse losses.
Nor does it say anything about whether stocks are about
done falling and ready for a recovery.
thereís no recession, a 20 percent decline may be
about the worst of the decline. On average, the U.S.
stock market ó or the Dow Jones industrial average ó
falls 19 percent when investors are simply rethinking
what theyíve paid for stocks and selling them because
they think they overpaid, according to research by Ned
Davis Research. Currently the Dow is down only 14
percent, not as bad as the globeís decline.
if the economy goes into a recession ó and so far the
U.S. is not in recession ó people can lose 30 percent
on average in a bear market that lasts on average 18
months. Since thatís an average, of course, the loss
can end up worse or better. Between late 2007 and early
2009, for example, the loss was 57 percent. People did
recover if they kept their money in the stock market,
but it took about five years.
recent headlines labeled the global stock market a bear,
individuals have become nervous. Financial planners say
they are getting an abnormally high level of calls from
financial planners tell people to sit tight and ride out
losses while awaiting the upturn that will arrive at
some point. But that doesnít mean there wonít be
some painful losses temporarily or that financial
planners have any insight into when the pain will stop.
have no control over the stock market," said
Northfield, Ill., financial planner Edward Gjertsen.
of predicting the stock market, reliable financial
planners tend to remind clients that during the calm
period when the client first sat down with the planner,
they thought about bear markets coming up at some future
time and inflicting losses. In those planning sessions,
they arrived at a combination of stock and bond
investments that would diminish, but not prevent losses,
while giving people a chance to make money in good
times. So many individuals are being told by their
advisers now that "buy and hold" makes sense.
valid, but the "buy and hold" mantra can also
be misleading to people fending for themselves. While
people with solid financial planners are likely
positioned to outlast a bear market, many people near or
in retirement are not, said Christine Benz, Morningstar
director of personal finance.
people should sell stocks, she said. Admittedly, now
would not be the ideal time after a harsh decline in the
stock market. Last summer would have been far better,
while stocks were climbing and investors werenít
worried about a slowing economy undermining stocks. But,
Benz said, if people are in retirement or about to
retire and have no cash or bonds available to cover
living expenses over the next few years, they should be
thinking about how to give themselves that cushion so
they donít have to sell stocks if they fall even
notes that people were lulled by the 180 percent climb
in the stock market after 2009 and began to ignore their
investments. So while in 2009, they might have vowed to
be cautious forever, inattention to investments now has
left them out of step with their intent. Cautious
portfolios, with half of money in stocks and half in
bonds in 2009, morphed over time into more risky
portfolios of 70 percent in stocks and just 30 percent
Benz said, it makes sense for people without cash
available for living expenses in retirement, to look for
opportunities to sell some stocks ó not all stocks ó
and reserve cash. Even if stocks are in a bear market,
there are often rallies that give people opportunities
to sell. Try to avoid selling on days when the stock
market is falling.