Retirement, Investments, & Insurance for Individuals Build your knowledge How to invest in a bear market: 5 options to consider

How to invest in a bear market: 5 options to consider

In a bear market, many investments drop in price, like they’re “on sale” for new investors. If you’ve been waiting to invest for the long term, now may be the time. Here are some tips to get started.

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6 min read |

It may seem like investments are “on sale” right now. Should you invest a bear market? And if so, where? How?

“Many people view a bear market as a time to panic,” says Heather Winston, director of individual solutions for Principal®. “As one of my colleagues used to say, ‘Panic is not a strategy.’ When the market drops, and it inevitably does, it’s time to invest in less-risky assets. People should stay focused on quality and fundamentals.”

What’s a bear market?

A period of stock market declines—when values fall 20% or more from recent highs.

Before you start, kick the tires on your financial plan, to make sure you’re ready.

  • You have or are working on an emergency fund, with at least three to six months of expenses saved in an account that’s liquid and accessible.
  • You’ve paid down credit card debt or any other high interest debts or loans.
  • You’re contributing to your workplace retirement plan, putting away at least enough to get a company match.
  • You’re protecting your income and assets. You have enough life insurance to take care of those you love and disability insurance to help protect your income if you become ill and unable to work.

If you've reviewed these basics and you still have money at the end of the month, here’s a quick look at further investment options to consider.

1. Increase your deferral to your 401(k) or other workplace retirement plan.

“If your 401(k) has taken a dip in the bear market, you may be thinking now is the time to sell everything. But this is one time to not trust your gut,” Winston says. In fact, given that most bear markets last less than 18 months, it may be a good time to resist selling your long-term investments.

If you increase your contributions, those dollars may be positioned to grow when the market rebounds—and none of us can predict when that might be.

Read: “This year’s retirement contribution limits and income restrictions: What to know”

2. Add to your Roth or traditional IRA.

Have you made your annual IRA contribution yet? Now may be a good time.

Weigh the difference between saving in a tax-deferred account vs. a taxable one. With a Roth IRA, you can withdraw earnings tax-free in retirement.

Depending how much money you make and if you’re not covered by a retirement plan at work, you may be able to deduct all or a portion of your traditional IRA contributions from your taxes (read details on the IRS website).

The more you save today, the more you’ll likely have years down the road.

Read: “You’ve found the right investment mix. Make sure it stays that way.” (PDF)

3. Open a brokerage account, if you don’t already have one.

Brokerage accounts can also be a helpful tool in reaching long-term goals.

You’ll need to know your risk tolerance—somewhere between conservative (more averse to risk) and aggressive (more tolerant of risk). This can help you select investments and build a portfolio you’re comfortable with, while continuing to work toward your goals.

The past few years have been a good test of investors’ tolerance for risk. If you find yourself worrying about whether your portfolio is gaining or losing day-to-day, or certainly if you’re losing sleep, you may need to adjust your risk profile. When your risk tolerance matches your investment portfolio, volatile times can be less concerning for you.

Read: “What type of investor are you: Get to know your risk tolerance” (PDF)

Choosing quality over risk.

If you invest, consider diversifying—spreading your money across multiple types of investments—to help mitigate some of the pain of market volatility since not all assets move in tandem.

  • For stocks, look for companies with good fundamentals: healthy balance sheets, free cash flow, and positive forward earnings.
  • For bonds, find quality in treasuries, investment grade corporate bonds, and munis.

First, learn the basics of stocks and bonds.

4. Set aside money in a 529 savings plan for a child or grandchild.

A 529 savings plan allows you to invest your money to be used for qualified education expenses such as college, apprenticeship programs, and K–12. This includes tuition, room and board, mandatory fees, and textbooks. You designate how and where it’s spent.

Before opening an account, get a full understanding of the plan, including its tax benefits, fees, expenses, and investment options. You can open a 529 plan offered by any state, so shop around for the one that best suits your needs.

Get started: If you’re interested in learning about our 529 plan, visit

5. Contribute more to a health savings account (HSA).

If you’re enrolled in a high deductible health plan (HDHP) through your employer, an HSA offers a triple advantage on federal income taxes: Money put in isn’t taxed, it grows tax-free, and you’re not taxed when you take money out for medical expenses. Plus, you decide how the funds are invested and how you’ll use the money for health care expenses.

To get started, talk to your employer’s human resources department about whether you have access to an HSA or how to increase your contributions.

Read: “3 ways to save for health care in retirement”


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