Why Bear Markets Shouldn’t Matter for Baby Boomers or any Investors

Shikha Mittra |

The ubiquity of the financial media has Baby Boomers anxiously pinned to their TVs, computers and investment magazines as the so-called experts prognosticate on the coming bear market.   Unquestionably, the stock market is at another crossroads, and its 30 percent gain last year belies the concerns that most people have over the economy and the uncertainty that continues to blanket the markets. So, gloom and doom forecasts by a media anxious to sell papers or air time, should not be at all surprising. Even if we were to buy into the media hype, should Baby Boomers be at all concerned? In the overall scheme of things, should bear markets even matter to them?

We submit that the only thing about bear markets that should matter to investors is how they react to them. First, on one should be surprised when a bear market occurs. They happen with some regularity. While we can’t really predict when they will occur, we know that they will.  And we also know that they will eventually give way to another bull market. In fact, there have been 23 bear markets in the last 100 years, each followed by a much longer-lasting bull market.

For long term investors, bear markets are healthy and necessary without which there would be no risk premium available in the market from which to generate returns. In essence, it is an efficient market’s way of pricing in the extreme unpredictability of long term returns in the shorter term. Investors with patience and the discipline to continue to invest during bear markets will be rewarded with higher returns during the bull markets.

Baby Boomers have much more to fear than a temporary stock market decline. With life spans expanding by the day, the worst fear of many Boomers is the possibility of outliving their income. The greater risk to retirees is their own longevity compounded by inflation, which has a 100 percent certainty of reducing their purchasing power over 25 or 30 years. Reduced purchasing power increases the need to draw down more income which can lead to its early depletion.

Instead of fearing the stock market, Baby Boomers should learn to embrace the risk that can generate the type of returns that can extend their income while maintaining their purchasing power.  Only through a well-conceived, long-term investment plans that employs an optimal diversification strategy can investors harness the risk in a way that captures the returns of the market while limiting the amount of portfolio volatility to a tolerable level.

There is no need to succumb to the noise and the hype of the financial media. With faith in the future that the market will continue to perform just as it has for the last 100 years – through wars, recessions, government dysfunction, and fiscal crises – all that is required is a patient and disciplined approach to managing risk and return. 

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2022 Advisor Websites.