The months-long slide for the S&P 500 has thrown stocks far enough from all-time highs It is a bear market.
Since the beginning of 2022, it has become S&P 500 . Index It’s down nearly 21% as of Monday afternoon, with companies like Amazon And the father of Google the alphabet in the lead with their drops of 39% and 27%. Elon Musk’s Tesla also lost 45% of its value Market value Since January – more than $500 billion has cut its market value.
Here’s what you need to know about bear markets, and what you should do when you find yourself in one.
Simply put, a bear market is the term used to describe a stock market drop of 20% or more from an all-time high. In this case, the S&P 500 closed on Monday at 3,749.91, its previous high of 4,818.62.
Since World War II, there have been 14 bear markets that have brought the S&P down an average of 30%, According to CNBC. Every bear market is unique, and the current market has a plethora of causes, says Laura Feldkamp, professor of finance and economics at Columbia University.
Two of those reasons, Feldkamp says, are raising interest rates to combat hyperinflation and pandemic-related uncertainty that is fueling the stock slide as investors try to figure out the long-term ramifications that Covid-19 will have on the global economy.
“The truth is that no one knows what the long-term consequences of this acquisition will be [shut down parts of the economy for long periods of time]She told CNBC Make It, because we had no experience doing this before. “Wherever there is a lot of guesswork and a lot of uncertainty, that means people’s beliefs can move a lot. And with those beliefs go stock prices.”
For many investors, seeing their portfolios turn red can be worrying and make them want to withdraw their money to avoid further losses. But Feldkamp says this is a wrong strategy.
“Don’t sell now unless you really need that money,” she says. “If you’re a guy who’s putting some equity into your 401(k) for retirement, don’t worry about this. Just keep doing what you’re doing.”
In fact, bear markets are “historically great opportunities to build wealth for long-term investors,” says Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management.
“An investor who begins systematically putting money into their 401(k) will have a greater equity 20 or 30 years from now if earlier in their investment career was able to take advantage of bear markets versus having to buy at all — all-time highs” .
However, Stucky recommends investors not to rush into investing all their money. They should also focus on increasing their savings. The important thing for investors is to “make sure you can handle these volatility” when buying stocks, because there will be more volatility in the future.
“Just from a state of sleeping at night, you don’t want your wallet to trigger a worry that affects your mental health,” he says.
The bright side, Feldkamp says, is that the market has bounced back from every single bear market.
“Be confident that she will be back in time, long before retirement,” she says. “Normally, it takes two years to recover some losses like this.”
average bear market It lasts 359 daysIt could take a full 38 months, Stucky adds, to go from the bottom of a bear market to a new all-time high. Going through an extended period like this can be stressful, he says, and for some investors, it can be helpful to break the habit of checking their balance frequently.
“There’s no reason for you to bring more anxiety into your life by looking at your balance multiple times a day, every day, or every other day,” Stucky says. “You can check it once a month and you’ll be fine.”
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