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What is a Bear Market?

 

Bear Market

One little known fact is how a bear market received its name. A bear, when attacked or going after its prey, will use its paw and motion downward to defend itself or get its prey.

Bear markets are a fact of life and one part of an overall market cycle. It has been over ten years since we have seen a bear market and due to recent volatility, it has come into the conversation. I am sure you have heard this term as well, but do you know what it means?

The technical definition of a bear market is where the markets have declined 20% or more from their recent highs. Should markets fall 20% or more in a few days it may not indicate a bear market. Certainly, if the markets decline, in total, 20 % or more over time and it is believed it will continue and not rebound it would be considered a bear market.

Bear markets are usually accompanied by an economic slowdown and rising unemployment. A bear market is usually indicative of an economy that is experiencing a lull which means corporate profits will experience a decline, spending will as well and layoffs will occur too. This is a natural part of the economic cycle and one you need to prepare for as part of your overall financial plan.

This part of the economic cycle is not one to be afraid and should be embraced. Bear markets do not mean all companies and all industries are being impacted negatively. There will be companies that will be well prepared to sustain themselves during an economic slowdown or bear market. It may mean a slight shift in your investment philosophy during these times. Also, for those with a long-term time horizon, the decline experienced during a bear market could present a tremendous opportunity to buy great companies at a significant discount.

Your financial plan must incorporate strategies on building portfolios that will endure in both bull and bear markets. I would also suggest stress testing your retirement plan against a bear market. Retiring during or shortly before a bear market can have an overall impact on your retirement plan. Testing this in advance of your retirement will help prepare you for retiring in this type of environment. This was most recently experienced by those who were retiring during the 2007-2009 bear markets.

We would be happy to discuss a bear market and how the Mitlin process helps you prepare for one. Bear markets are a natural part of an overall economic cycle and should not be ignored. It also does not necessarily mean all companies are set for a decline; it also presents opportunities. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time to discuss bear markets and your portfolio. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Tags: Mitlin Financial, Financial Future, Volatility, Market Volatility, What is?, Bear Market, Market Decline, Economic Slowdown

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