Is It Time to Get Ready for a Bear Market?

For investors, it's been a rough start to the new year. On the first trading day in 2016, the stock market went into a steep slide, fueled by a pullback in Chinese stocks. The Dow Jones Industrials plunged more than 450 points before rebounding to end the day down 276 points.

If you were already nervous about holding stocks, the stock slide probably ratcheted up your fears of a lurking bear market. Yes, there are reasons to worry. But for long-term investors, your top priority this year should be to prepare for the increasing rockiness on Wall Street—not to bear-proof your portfolio. (Those in, or near, retirement may want to make additional moves, as we explain below.)

Since the market bottomed out in 2009, the Standard & Poor’s 500-stock index has gained a stellar 220%. And in May, if prices continue to rise, the bull will become the second-oldest rally in Wall Street history.

That doesn’t necessarily spell doom, but it’s a glaring sign that increasing choppiness lies ahead. By one measure, market volatility jumps 25% at this stage of a bull, according to S&P. And you’ve already seen some of that stomach-churning action. Overall last year there were twice as many days of 1% to 2% swings in the broad market vs. 2014, notes Jim Stack, president of InvesTech Research. “So investors need to be prepared for growing volatility,” he says.

Despite the recent setbacks, there’s little indication that an actual bear is lurking. “Our research suggests a sluggish economic recovery like we’ve seen typically leads to a longer-than-average bull market,” says T. Rowe Price portfolio manager Rob Sharps. And broadly speaking, “we don’t see those signs of froth” exhibited in the late-’90s tech bubble, such as record-high valuations, says Liz Ann Sonders, chief investment strategist at Charles Schwab.

Economic fundamentals also appear reasonably strong. Most economists are looking for U.S. GDP growth of 2.5% this year, which is in line with last year’s growth rate, according to a survey by Blue Chip Economic Indicators.

What to do: Given this backdrop of decent fundamentals but rising jitters, stay invested but focus on funds with a knack for calmly navigating stormy waters. Over the past five years PowerShares S&P 500 High Quality ETF has lost 20% less than the market in down months. A new member of our Money 50 list of recommended mutual and exchange-traded funds, SPHQ focuses on companies with steady earnings and dividends, like Johnson & Johnson and 3M .

If you’re near retirement, or already there, you may want to go one step further, as the stakes of running into a bear at this stage are so high. “As you’re nearing retirement, it’s a good idea to lighten up on stocks and take some risk off the table, especially if you’ve already got the savings you need,” says adviser William Bernstein, author of The Four Pillars of Investing. That’s especially true when you’re in the last stages of a bull market.

Say you were 65 in 2008 with $1 million split 65% in stocks and 35% in bonds. After the crash, you entered retirement with less than $780,000, which fell to $745,000 if you withdrew 4% to live on. Had you switched to a 50% stock/50% bond mix, you’d have started out with $60,000 more.