Living With Your New Bear Market

Now that it’s official, your first task is to take a deep breath and assess your risk

- Suzanne Woolley

Individual investors need a new playbook—or maybe a revised version of the old one. The rally in stocks that had been boosting retirement fund balances sputtered early this year, but it came to a sharp end on June 13. That’s when the S&P 500 finally slipped into a bear market, which is generally defined as a market close at least 20% below its peak. Declines like these can make us more emotional investors, whether we realize it or not.

We feel losses more intensely than we perceive gains, and that affects our investing behavior. To see an S&P 500 index fund fall 20% can quickly overshadow the fact that the index has still returned, with dividends, about 70% over the past five years. If you’ve been steadily investing in a diversified portfolio for years, you don’t need to beat yourself up over any big mistakes right now. Your best response to a bear market may be to stick with your plan. If you are continuing to invest a bit of your paycheck each month, you are at least buying stocks more cheaply now.

That said, the unease you might be feeling can serve a purpose if it leads you to take a hard look at the makeup of your portfolio and the level of risk it carries. It’s a good time to ask if you really are comfortable with that risk and if it’s likely to serve you well across many market cycles, not just during bull runs.