Bear market strategy for millennial investors

If there was a prize for experiencing unprecedented events, millennials could take first place. Older millennials entered the workforce during the Great Recession and have since experienced a devastating pandemic and a spike in inflation not seen in 40 years. On top of that, the actions taken by the Federal Reserve to control inflation sent the stock market into a tailspin.

The S&P 500 index officially fell into bearish territory on June 13, when it fell 21.3% from its peak in early January. (A bear market occurs when a broad stock index falls 20% or more from its peak.) After a summer rally, stocks fell again in September, and as of October 7, the S&P 500 was down 23.2% from its peak.

This series of unfortunate events leads some young investors to withdraw money from the stock market or close their brokerage accounts altogether. According to a recent Ally Financial survey, almost 20% of investors closed a brokerage or investment account in the past 12 months, and of these the largest group (over 20%) were made up of Millennials and Gen Z.

To subscribe to Kiplinger’s personal finances

Be a smarter, more informed investor.

Save up to 74%

Sign up for Kiplinger’s free email newsletters

Enjoy and thrive with Kiplinger’s best expert advice on investing, taxes, retirement, personal finance and more – straight to your email.

Profit and thrive with the best expert advice from Kiplinger – straight to your email.

Watching my retirement savings dwindle since the start of the year has made me sick to my stomach. But for me, closing my account is a no-start.

Once you sell your investments, you have to decide when to back out. And it’s hard to plan for a market turnaround, says Marci McGregor, senior investment strategist for Bank of America Merrill Lynch. A better strategy is to remember your reasons for investing and stick with your investment plan through good times and bad. If you invest a regular amount of money at regular intervals, you profit from dollar cost averaging, buying more shares when prices are lower.

Market history 101. Investing should be considered with a goal in mind. If your goal is a safe and relaxing retirement, keep in mind that for most of us, that’s 30 years or more. If you withdraw money from the market now or close your account, you will miss out on the rewards of a market rebound.

The average length of a bear market since the stock market crash of 1929 is just 9.6 months, according to Ned Davis Research. And while these months are stressful, the good times last longer than the bad: the average bull market lasts 2.7 years. If these averages hold, we have many more bear and bull markets to endure before we reach our golden years. And if you think inflation and the growing possibility of a recession will prevent better days from coming, history says the markets will prevail.

According to research by Roger Ibbotson, professor emeritus at the Yale School of Management, stocks of large S&P 500 companies have returned an average of 10.5% per year from 1926 to 2021. For those rusty about their history, this period includes the Great Depression, World War II, the years of high inflation from 1965 to 1982, which peaked in 1980 at 12.4%, and the Great Recession from 2007 to 2009.

Good investing habits. To calm your nerves, don’t review your portfolio every day. And if you’re used to watching the news, stick to the three-day rule invented by Investing for Kiplinger Income Editor-in-Chief Jeff Kosnett: In any news-driven market crisis, wait until the third business day after the news breaks before trading stocks, funds, gold — anything. After the three-day break, if you’re still tempted to do something, stock up on quality stocks that pay dividends, like those in the Kiplinger dividend 15. This strategy is known as “buying the dip”, which means you buy good stocks that have fallen sharply, hoping they will rebound. And that means better earnings for the future.