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July 1, 2020
Managing investments through a bear market takes an alternate strategy that lets you weather the upcoming uncertainty.
Few hope to see extraordinary returns in a bear market. But, if you play it smart and not too safe, you’ll still be gaining ground when the bull storms down the street again.
Here are two ways to manage your money through this downshift, whether you want to play it super safe or can tolerate a little risk:
The knee-jerk reaction to a downward trend in the market is to sell everything and hoard your cash. But imagine if everyone made the same decision. All you need is to look back to 1929’s legendary stock market crash to see what happens when too many try to cash in.
For people who are near retirement, this strategy might not be as radical as it sounds. Money Matters advisor, Ken Moraif, tells U.S. News & World Report Money that he advocates a radically safe strategy for the clients he calls “near-retirees.”
Moraif says the investing mindset should shift from aggressive growth to preservation of what you’ve got, at least for people who don’t have 20 or 30 years to recover from losses. He advocates moving money into short-term annuities and money market accounts instead of watching what you’ve invested trickle away.
If selling and moving most of what you’ve got into an annuity seems a little too extreme, you can still be safer without getting stuck in a no-growth cycle. Where some return is better than none, Investopedia says many people opt for investing in larger, safer companies.
This lets you stay active in the stock market while minimizing your exposure to the worst of its volatility. Established companies with a long history in business are defensive stocks. They’re more stable and have more operational cash on hand, which means that they aren’t as wobbly when the rest of the market ebbs and flows.
Companies that make the cut for this kind of defensive strategy include anything related to food and utilities. Even when the economy isn’t great, people still need to eat and keep the lights. According to Investing Answers, these companies usually “outperform the market” when things aren’t so rosy elsewhere.
Financial analysts might disagree on why a bear market happens or how long it will last, but if you’re very close to retirement, safety might prove to be the smartest choice that you can make. You won’t earn much, if any, by moving your money to bonds or short-term annuities. But you won’t lose your shirt, either.
If retirement isn’t just around the corner, or if some losses aren’t particularly worrisome to you, a defensive investing strategy might be the better choice. You won’t earn like you could with riskier investments in a bull market. But defensive investments are usually the rock stars when everything else is unstable.
NewRetirement knows that saving and investing for retirement can be an unnerving endeavor. That’s why we offer a host of services and educational resources to help you manage your money better. Take our retirement calculator for a spin, and start learning about making your money work for you.
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