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Published: Jun 30, 2022 9 min read

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No investor likes to see stocks fall. But this year's market downturn is especially bad news for the cohort of retirees and near-retirees with large portions of their portfolios tied up in stocks.

While the S&P 500 officially entered a bear market in June (down more than 20% from its previous record high), younger investors probably have no reason to panic. On the contrary, they now have an opportunity to buy stocks at low prices and let their portfolios grow over the course of decades as the market recovers.

The picture is bleaker for investors who are retired or plan on retiring soon — and whose stock-heavy portfolios have taken a big hit lately.

For years, investors grew accustomed to reliably handsome returns in the stock market. A long-running bull market was interrupted briefly in the early days of the pandemic, only to be followed by another stretch of soaring stock prices.

It's understandable, then, that many investors have kept a high portion of their portfolios in stocks, especially now that 401(k) accounts are steadily replacing fixed-income pensions as the default retirement planning option for private sector workers. Nearly three-quarters of the assets in 401(k) plans managed by Vanguard were invested in stocks in 2021, according to a recent report from the firm, up from two-thirds of assets invested in stocks in 2012.

Now that we're in a bear market and facing a possible recession, however, retirees who remain heavily invested in stocks through their 401(k) accounts are facing “uncharted waters,” says Richard Johnson, Director of the Program on Retirement Policy at the Urban Institute.

401(k) accounts aren’t foolproof