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 | Nick Vega is a money reporter at CNBC Make It. You can follow him on Twitter at @atNickVega. | | |
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After a monthslong slide, the S&P 500 index this week officially entered what is known as a "bear market." Put simply, a bear market is the term for when stocks are 20% or more off of a recent high. In this case, it happened on Monday when the index closed below 3,800. Bear markets are typically, but not always, associated with recessions, and are a good indicator that the financial markets are in for an extended period of turmoil before things calm down. Despite the havoc that bear markets can wreak on the economy, they can also present opportunities to grow your money. In fact, savvy investors can use bear markets to accelerate their retirement savings, Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, told me earlier this week. "An investor that starts off methodically putting money into a 401(k) is going to have a bigger balance 20 or 30 years from now if earlier on during their investing career they were able to take advantage of bear markets versus having to buy at all-time highs all the time," he says. |
Focusing on growing your savings during a bear market is also helpful, Stucky says, because it's important to "make sure that you can handle these swings" when buying stocks, because there will be more volatility to come. The average bear market lasts 359 days, and Stucky adds that it can take a full 38 months to go from the bottom of a bear market to a new all-time high. Luckily, the one thing you can be sure of about a bear market is that it will end eventually, Laura Veldkamp, a finance and economics professor at Columbia University, tells me. "Have faith that it's going to come back in due course well before you retire," she says. "Usually, it takes a couple of years to recover some losses like this." The main thing to avoid is selling your investments when you see them losing value. Instead, hold steady until the bear market is over. "Do not sell right now unless you absolutely need that money," Veldkamp says. "If you're a young person who's putting some stocks in a 401(k) for retirement, don't worry about this. Just keep doing what you're doing." |
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