The bear market that’s arrived on Wall Street carries different challenges for different investors, with younger folks generally better equipped to weather it because they have more time to wait for the rebound. That doesn’t mean Gen Z investors should wave it off as no big deal, however.
As CNN Business recently reported, this is all new territory for most Gen Zers. Many began investing during the COVID-19 pandemic because they were out of work, had plenty of time on their hands, and had access to cash through federal stimulus programs and increased unemployment payments.
They mostly watched their investments go up in value — until this year when stocks began their long slide into a bear market. Now Gen Z investors need to figure out how to navigate their first market downturn.
1. Bear Markets Happen All the Time
On average, bear markets occur about every three-and-a-half years, according to Frank Holmes, CEO and chief investment officer at U.S. Global Investors. As a young investor, it’s a good idea to prepare for when they happen — because they will happen. To help soften the blow, make sure your portfolio is diversified enough to account for market downturns. In a column for Forbes, Holmes said he recommends a 5% to 10% weighting in gold and gold mining stocks and ETFs.
2. But They Usually Don’t Last That Long
Depending on the formula, bear markets typically last anywhere from about nine-and-a-half months to 13 months. That might seem like an eternity to someone in their 20s, but over a lifetime of investing it’s barely a drop in the bucket. Bear markets are usually shorter than bull markets, and in the long history of the U.S. stock markets, bears are always followed at some point by bulls.
3. Patience is a Virtue When Dealing with Bears
Because bear markets are temporary, there is no reason to panic by selling all your stocks and putting your money into cash accounts. If you have enough liquid assets to weather the downturn, it is best to just leave your stocks alone during a bear market. This will prevent you from pulling out at the bottom and risk missing the inevitable rebound, Mark Riepe, managing director of the Schwab Center for Financial Research, told CNN Business.
4. The Long View is the Best View
If you’re investing for a retirement that might not begin for decades, you should develop a long-term strategy that accounts for market volatility. Fidelity Investments recommends choosing a mix of investments based on your timeline, risk tolerance, and personal financial situation and goals, then sticking to that long-term approach. This approach will help you maintain a good mix of assets — such as growth and value stocks, bonds, funds, cash and money market securities — and keep you from making sudden and unnecessary moves during a bear market.
5. There are Still Good Stocks to Buy
A bear market is no excuse to stop investing in stocks. In fact, it can be an excellent time to buy — if you choose the right ones. Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNN Business that she recommends focusing on companies whose balance sheets are rich in cash and low in debt, and that have positive earnings revisions and low volatility. These types of companies tend to have strong business fundamentals, which means that buying them at depressed prices should pay off later.
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