Everything Investors Should Know About the Bear Market

The months-long decline for the S&P 500 index has pushed stocks so far from their all-time highs that the markets are now officially considered a bear market.

As of Monday afternoon, the S&P 500 index is down nearly 21% since the start of 2022, with companies like Amazon and Google parent Alphabet, down 39% and 27% respectively, are leading the way. Elon Musk's Tesla has also lost 45% of its market value since January - lost more than $500 billion in market value. With inflation and global uncertainty, the problem was exacerbated as experts predicted that a recession could be imminent. Here's what to know about bear markets and what to do when you find yourself in a bear market.

What should investors do in a bear market?

For many investors, seeing their investment portfolio turn red can be alarming and cause them to want to withdraw their money to avoid further losses. But that's the wrong strategy, says Veldkamp. “Don't sell that money right away unless you absolutely need it,” she says. “If you're a young person putting stock in a 401(k) for retirement, don't worry about it. Just keep doing what you're doing." “Bear markets are historically great opportunities for long-term investors to build wealth,” says Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management. “An investor starting out methodically investing in a 401(k) could have a bigger budget 20 or 30 years from now if he could take advantage of bear markets instead of buying at all-time highs.” Still, Stucky advises investors not to rush to invest all their money. He says, they should also focus on increasing their savings. The important thing for investors is to “make sure you can handle these fluctuations” when buying stocks because there will be more volatility. Finally, Stucky warns, “You don't want your portfolio to become anxieties that keep you up at night, affecting your mental health.”