Your Age and Life Stage Help Predict Bear Market Choices

A bear market is never a pleasant experience, but its effects can vary depending on where one is on the age spectrum. A bear market can, for example, offer opportunities for savvy young investors with time on their side. On the other hand, such a market can be a devastating financial upheaval for ill-prepared older investors who are close to - or deep into - retirement. Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.

Bear Necessities

A bear market is a period when investors are feeling pessimistic, and as a consequence are more likely to sell rather than buy shares. An individual’s approach to investing - and his or her time horizon - makes all the difference in how they weather a bear market.

Although stocks, even in today’s chaotic market, aren’t cheap by historical standards, young investors should be more interested in buying stocks after 2022’s bearish “sale” of 20%+ than during the past two years of a 100%+ rise that preceded it. (From the S&P 500’s March 2020 lows to its all-time high of January 3, 2022, the index soared 114%, even in the face of a once-in-a-century pandemic).

Due to the Fed’s aggressive battle with inflation, interest rates that help drive stock prices down also push up yields on bonds and other income-producing assets. For this reason, young and old investors alike can again start viewing such assets in their portfolio in terms of how much income they can produce…stored energy, for future spending, if you will.

The ultimate objective of older investors is to protect against running out of money in retirement. When a bear market begins to negatively impact a portfolio in a meaningful way, it’s a signal to start making sacrifices and/or deferring gratification. Among viable alternatives is to consider taking a part-time job early in retirement and/or to reduce the annual percentage of withdrawals to reduce the outflow of money from a portfolio when its value is down. Another consideration is to delay taking Social Security until age 70.

Delayed Security

With the Fed raising interest rates very aggressively in a seemingly belated attempt to curb inflation (already in the 9%+ range) and stocks already romancing bear territory, older investors have reason to be concerned about the prospective length of the bear and its recovery.

Social Security is a precious asset that many folks don’t appreciate enough. Basically, it’s a guaranteed, lifelong annuity that the federal government increases annually in response to inflation - roughly 6% to 8% after inflation for each year of delay.

By holding off until age 70, a recipient’s eventual monthly payouts increase; thus, deferring this important benefit assures a retiree of a significantly higher and guaranteed monthly paycheck. This is important in light of rates of inflation the country is currently experiencing. Of course, health issues are a significant factor in making decision.

Lifestyle Choices

For most older retirees, during a bear market, it’s important to adjust spending habits in tune with the ferocity of the bear; otherwise, funding the lifestyle you hope to enjoy throughout retirement might be profoundly impacted in later years. Should financial difficulties be anticipated, a retiree can often be more flexible with discretionary spending early in the retirement years…say when medical expenses are likely to be lower.

As we older folks know through experience, markets rebound at different paces depending upon the aforementioned ferocity of the bear. One’s response is an individual choice. By delaying withdrawals from retirement funds early on, when financial markets finally do bounce back, spending can always be readjusted upward as portfolio values recover. Keep the faith.

Autopilot Investing

The "stagflation" years of the mid-1960’s through the early 1980’s was an era of erratic economic growth, double-digit inflation, and an S&P 500 Index frozen in a tight 94-102 range…a trying experience for even the most patient investor. Many finally gave up. Stock mutual fund investing actually shrunk during the 1970s and the S&P 500 was low.

How did investors who held tight fare during stagflation? Hard to say. Those were the days before automatic investing was popular, offering few clues for measuring a sparse, but steadily investing audience. And investing on autopilot - even in good times - is no guarantee of positive results.

The 2020 pandemic-related market crash dropped like a rock but recovered just as quickly with the crash and subsequent recovery each measured in a few months. Millions of clients have found it easier to "stay the course" with autopilot investing offered by Fidelity, Vanguard, Schwab, Blackrock, etc. It enforces an element of discipline, which today’s marketplace seems to have more of as those who invest on a scheduled basis tend not to head for the exit in a bear market.

Also, routine investors are less likely to attempt to time the market and worry less about buying at the wrong time. This is particularly important for young investors with those long time horizons. How better to perceive falling markets as opportunities than from a young adult’s perspective? The Omaha Oracle once said, “Prospective buyers should prefer sinking prices.” I agree. We buy clothes and many other items on sale, why not stocks?

Grin and Bear It

Regardless of age, certain investors, it seems, are compelled to react…to do something…during a bear market. Others do nothing out of fear of being wrong – and quite often, doing nothing is a wise choice to make. Still others see low prices as an opportunity to benefit from a potential windfall whether it be buying the dips, taking the plunge, or dollar-cost averaging.

Anxiety-inducing though they may be, the aftermath of bear markets can be very fruitful to investors who have the fortitude to exercise patience with their portfolios during difficult financial dives…and the following months (or years) of economic recovery. Not so much for older, less prepared investors when time is much more of the essence.