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Stocks' bad year just got worse.
On Monday, the S&P 500 hit a new low for the year, and all three major indexes ended the day in a bear market. The S&P 500, Nasdaq Composite and Dow were down around 24%, 32% and 20% for the year, respectively, at Monday's close.
The commonly accepted definition of a bear market is when a stock market index drops at least 20% from a previous high. But what exactly does it mean in the grand scheme that all three indexes are now in a bear market?
"If we put it into context, it’s just that we are currently in a Fed funds hike cycle and when that happens you get volatility," says John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.
In order words, the Federal Reserve has been hiking interest rates — a move used to fight high inflation and cool the economy but that also tends to bring down the prices of financial assets like stocks.
There are a lot of negative forecasts coming out of Wall Street, Stoltzfus adds. Goldman Sachs, for example, recently cut its end-of-year target for the S&P 500 by 16%.
"Negative projection is part and parcel of the process," Stoltzfus says. "If you remember 2020, people thought the world was going to end and then stocks turned around."
The three major stock indexes were up during trading Tuesday morning, but things still look grim at the moment for investors. Looking at the balance in your investment portfolio probably doesn't feel very good lately, to put it mildly.
Yet here are two investing moves you can consider right now to ease the pain — and perhaps even take advantage of the situation.
Reassess your investing plan
Any money you've invested in stocks should be money invested for the long term — and you should expect that the market will periodically go down when you're owning them, says Tricia Rosen, principal at Access Financial Planning, based in Andover, Massachusetts.
But "if somebody is in a situation where it’s creating a lot of anxiety for them to watch the market go down, then that's an indication that they're probably not invested appropriately for what their money needs to do for them," she adds.
If that's the case, she advises revisiting your goals and making sure they still align with your investing plan. Some people are simply more comfortable with a lower-risk portfolio.
This is the first bear market many young investors are facing, and it can be scary. But if you are decades away from retirement and in the accumulation phase, it's best not to constantly look at your portfolio, Rosen says. Remember that market downturns are to be expected, and that history tells us stocks always recover, eventually.
On the other hand, if you're a retiree and you're relying on your investments to cover your short-term needs, it's a good time to make sure you have have a high portion of assets considered less risky, like bonds.
In general, investors should be regularly rebalancing their portfolios, which refers to buying and selling investments to get the weightings back to you what makes sense for your financial situation, goals and risk tolerance.
Take advantage of low prices for stocks
A bear market may have you feeling queasy, but it can also be a buying opportunity if you have some cash you've been meaning to put to work.
"Bear markets are the time to be a buyer, not a seller, of stocks," Christopher Ballard, managing director of Check Capital Management, told Money in June.
That means keeping calm and not selling your stocks in a panic, but it also means viewing low prices as an opportunity.
Ballard said to think of these stock prices like a sale at your favorite store: You’re getting them 20%, 30% or 50% off, but you still have to be smart about your purchases and make sure what you're buying aligns with your long-term investing goals.
Financial advisors tend to recommend dollar-cost averaging — a strategy that entails investing a set amount regularly, like $100 a month — as opposed to trying to time the market with a strategy like "buying the dip."