PRACTICAL PORTFOLIO: Bear Market Do's and Don'ts

Kiplinger's Personal FinanceJune 2020

PRACTICAL PORTFOLIO: Bear Market Do's and Don'ts
Follow our guide for navigating a tough market.
Ryan Ermey
AS THE COVID-19 PANDEMIC SPREAD ACROSS the globe, economies the world over came to a screeching halt, and stock prices tumbled into a bear market more quickly than they ever have. Stocks subsequently rallied sharply, but we’re far from in the clear. With no hard-and-fast time line for when life will return to normal, the only thing investors can be certain of for now is more uncertainty.

But if history is any indication, we can count on one thing: This bear market, no matter how ferocious, will come to an end. Despite the unique viral source of current market turmoil, “this is all part of the market cycle,” says Morningstar director of investor education Karen Wallace. “Bear markets have happened historically, and they’ll happen again.” In other words, market history is repeating itself, and the time-tested strategies of the past dozen bears will help you navigate through this one, too. Here are some portfolio do’s and don’ts to consider:

DON’T cash it all in. If you’re retired or nearing retirement, you may be tempted to protect your portfolio by moving major chunks of it to cash. “Investors often make the mistake of looking at their portfolio as one big thing,” says Rob Williams, vice president of financial planning at Charles Schwab. Rather, investors can view it as a mix of investments with different time horizons, he says. Williams recommends retirees hold enough cash to cover two years of retirement expenses. You’ll also want a cache of high-quality bonds and other income investments that will cover intermediate-term obligations. The rest can remain in faster-growing investments geared toward longer-term goals—namely, beating inflation and providing the funds you’ll need 10 to 30 years out. “If you get out of the market, money you had invested toward a long-term goal won’t be able to participate when the stock market rebounds,” says Williams.


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June 2020