Since retirement planning takes place over the length of your entire career, you're bound to go through a few bull-and-bear market cycles along the way.
Investing for retirement amid a bear market may seem scary. Why would you want to put your hard-earned money into stocks when the market just seems to keep going down? But if you stick to your plan, a bear market can be one of the best opportunities to grow your retirement savings.
Here are three ways to save and invest for retirement, even in a bear market.
1. Know your options
There are a lot of different types of retirement-specific investment accounts. Be sure you know all the options at your disposal.
If your employer offers a sponsored retirement plan with matching contributions such as a 401(k), that's probably the best place for you to start. Contributing enough to your workplace retirement plan to receive the full matching funds available to you is one of the best ways to boost the amount you're investing for your future.
You can also contribute to an individual retirement account, or IRA. An IRA provides similar benefits to a workplace retirement plan, but usually has much lower fees (or no fees at all) and far more investment options. The drawback is that the annual contribution limits to IRAs are low. For 2023, you can contribute up to $6,500 (or $7,500 if you're 50 or older).
You may also have access to a health savings account, or HSA. These accounts are only available to people who have a qualifying high-deductible health insurance plan. While HSAs are designed to help people pay for medical expenses, they can also be used to bolster your retirement investing if you don't need to use the money in them to pay for medical care. And they, too, allow you to invest in a tax-advantaged way for retirement.
The last option -- which is not retirement specific at all -- is to invest via a standard brokerage account. While those accounts don't give you any tax advantages, they offer a lot more flexibility, which can prove very useful.
2. Focus on the process, not the results
It's important to focus on consistently adding to your investments rather than getting wrapped up in what your portfolio balance is doing at any given point in time.
During a bear market, you may find your portfolio's declines are greater than the amount you're contributing to it. That may be discouraging if you focus on the drop in your portfolio's value.
Instead, recognize what you are doing today to set yourself up for a better future. And consider this: If you thought investing in the stock market was a great idea during the last bull market, there's no reason to think investing isn't an even better move during a bear market after stock valuations have declined.
If you stick to the process over the long run, you'll come out further ahead than you would if you tried to time the market -- or worse, let the bear scare you into selling your portfolio and moving to the sidelines.
3. Resist the urge to change course
While this bear market presents you with an opportunity to do some reassessment of your portfolio, now is not the time to completely overhaul your investment strategy.
If you invest primarily in growth stocks for your retirement because you're young and have a long time horizon, a bear market is going to hurt the value of your portfolio more than the portfolio of someone who largely invests in value or defensive stocks. But just because growth stocks have fallen out of favor for the time being doesn't mean you should follow the crowd and switch everything to value stocks. Additionally, now is not the best time to make big bets in the hopes of rapidly getting back to even.
The middle of a bear market is a great time to assess whether the risk tolerance profile you started investing with is accurate. It's OK to feel uneasy amid a bear market, but if you feel like you just want to sell everything and cut your losses, that indicates you're not able to stomach as much volatility as you previously thought you could. Keep a journal of how you're feeling.
But resist the urge to make sudden wholesale changes in your portfolio. It probably makes more sense to simply rebalance toward your target asset allocation now and let the markets recover to a level where you're not panicking every time you look at your portfolio. Then you can make decisions with a clear head instead of changing things based on fear.
Make a plan and stay the course
Regardless of whether there's a bear market or a bull market happening, saving for retirement doesn't have to be complicated.
Assess all your options, develop your investing habit, and stick with it over time, and you'll probably end up with a tidy nest egg when it's time to retire. While short-term market drops can be scary, they shouldn't prevent you from saving for retirement.
