Bear Market Strategy for Millennial Investors

A focused, goal-oriented approach to investing can help millennials navigate a bear market.

bear waves
(Image credit: Getty Images)

If there were a prize for living through unprecedented events, millennials might win first place. Older millennials entered the job market during the Great Recession and have since experienced a devastating pandemic and a spike in inflation not seen in 40 years. On top of that, the Federal Reserve’s moves to tame inflation have sent the stock market into a tailspin.  

The S&P 500 index officially fell into bear-market territory on June 13, when it dropped 21.3% from its early-January high. (A bear market occurs when a broad market index falls 20% or more from its peak.) After a summer rally, stocks dropped again in September, and as of October 7, the S&P 500 was down 23.2% from its peak.

This series of unfortunate events is leading some younger investors to pull money out of the stock market or shut down their brokerage accounts entirely. According to a recent survey by Ally Financial, nearly 20% of investors closed a brokerage or investment account over the past 12 months, and of those, the largest group—more than 20%—consisted of millennials and Gen Zers. 

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Seeing my retirement savings shrink since the beginning of the year has made me queasy. But for me, closing my account is a nonstarter.  

Once you sell your investments, you have to decide when to jump back in. And timing a market turnaround is difficult, says Marci McGregor, Senior Investment Strategist, Managing Director, Chief Investment Office for Merrill and Bank of America Private Bank. A better strategy is to remember the reasons why you’re investing and continue your investing plan during good times and bad. If you invest a regular amount of money at regular intervals, you take advantage of dollar-cost averaging, buying more shares when prices are lower.

Market history 101. Investing should be viewed with a goal in mind. If your goal is a secure and relaxing retirement, keep in mind that for most of us, that’s 30 years or more down the road. If you pull money out of the market now or close your account, you’ll miss the rewards of a market rebound. 

The average length of a bear market since the stock market crash of 1929 is just 9.6 months, according to Ned Davis Research. And while those months are stressful, the good times outlast the bad: The average bull market sticks around for 2.7 years. If these averages hold, we have many more bear and bull markets to endure before we reach our golden years. And if you think inflation and the growing possibility of a recession will prevent brighter days from coming, history says the markets will prevail. 

According to research from Roger Ibbotson, emeritus professor at the Yale School of Management, large-company stocks in the S&P 500 have returned, on average, 10.5% annually from 1926 to 2021. For those rusty on their history, this time frame includes the Great Depression, World War II, the high-inflation years from 1965 to 1982, which peaked in 1980 at 12.4%, and the Great Recession of 2007 to 2009. 

Good investing habits. To calm your nerves, don’t review your portfolio every day.  And if you’re in the habit of watching the news, stick with the three-day rule coined by Kiplinger’s Investing for Income editor Jeff Kosnett: In any news-driven market crisis, wait until the third business day after the news breaks before trading stocks, funds, gold—anything. After the three-day hiatus, if you’re still tempted to do something, load up on quality, dividend-paying stocks such as those in the Kiplinger Dividend 15. That strategy is known as “buying the dip,” which means you’re buying good stocks that have dropped sharply, with the expectation that they’ll bounce back. And that means better gains for the future. 

Rivan V. Stinson
Ex-staff writer, Kiplinger's Personal Finance

Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.