Protecting Your Stocks Against a Bear Market - Based on Your Age
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Here's your Money Briefing for Wednesday, June 22nd. I'm J.R. Whelan for The Wall Street Journal. 2022 has been a rough year for stock portfolios and 401ks. And while we often hear about stocks falling into a bear market, a decline of 20% from recent highs, it turns out investors are actually dealing with two different bear markets, depending on their age.
Young people are accumulating. assets in the stock market, and people in or near retirement are decumulating. They need their investment portfolio to provide some of the income that will sustain them during retirement.
Whether you're just building your portfolio or already eyeing retirement, WSJ Intelligent Investor columnist Jason Zweig has insights on how you can protect your nest egg from the bear. That's after the break.
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What is the episode about and why did 2022 hit stock portfolios hard?
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Great to be with you, J.R. So, you know, Jason, pretty much anybody with a stock portfolio or a retirement account winces when they've seen the broad declines in this bear market. But how has this market become something of like a two-headed monster and how it's affecting people with money in the market?
How you're affected by this market decline and this two-headed monster is going to depend partly on how the market behaves, but it's going to depend even more on how you behave. And That should be less a function of what the market does than your investment horizons, what phase you're at in your lifelong career as an investor.
Okay, so let's talk about how investors should respond. We often hear what people should not do in a volatile stock market, you know, make knee-jerk reactions. But let's talk about how people should approach this market. You mentioned retirement horizons. How should somebody who might be relatively new in their career and building a portfolio approach this market?
What I think is very important for younger investors to realize is that the habit people have formed in recent years of buying the dip, you know, jumping in and buying a few more stocks whenever the market goes down. That has worked wonderfully during a period when interest rates have been very low. It might not work so well in the short to medium term future.
How do ‘two different bear markets’ affect investors of different ages?
However, I think if you patiently accumulate stocks over the period we're facing now, Eventually, down the road, when you're no longer young, you'll be very glad you did. Whether that will pay off in a year or two or in a decade or two is hard to say, but I do think eventually it will pay off.
So how is this bear market different for someone older who can see retirement in the near future?
So retirees and near retirees are in almost the opposite situation because young people are accumulating assets in the stock market and people in or near retirement are decumulating. They need their investment portfolio to provide some of the income that will sustain them during retirement. So a bear market can be especially painful to someone with that investment horizon. And there isn't much you can do with your portfolio itself that will mitigate that for you.
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