Is it a bear or a bull?
Understanding the market’s animal-like behavior
You’ve most likely heard the words “bear” and “bull” when the topic of the stock market comes up. But what do they mean when applied to investing and saving for retirement?
These symbolic animals, known for their strength and stubbornness, are used to represent market volatility; bear markets fall, and bull markets rise. We see ups and downs in the stock market throughout each trading day. Fluctuations are affected by supply and demand, corporate performance, world security, policy changes and more.
If you’re a Plan 3 member, your account has two parts: pension and investment. Your employer contributes to your pension, and you contribute to the investment account. The investment fund lineup is provided by the Washington State Investment Board (WSIB). Those who participate in Washington’s Deferred Compensation Program (DCP) also select from investment funds provided by WSIB.
Keep in mind that all members of the state’s retirement systems have a defined benefit pension in their retirement plan. For Plan 1 and Plan 2 members, that means your retirement income is based on your earnings and length of service, regardless of market performance. Plan 3 members have a defined benefit pension and investment and an investment account.
Many of us worry about our retirement savings during highly volatile bear markets. But consider how well you tolerate risk before you make changes to your investments. Are you younger and just starting your career? Data shows that investing early and hanging tight during a bear market may pay off in the long run. According to Voya Financial, over the past 100 years, the U.S. has experienced countless wars, inflation and pandemics. Despite the chaos, patience pays: For over 100 years stocks have roughly doubled every eight years. (Voya is the recordkeeper for Plan 3 and DCP.)
However, as people near retirement, many take a low risk approach. Experts recommend spreading out your investments across different asset classes, so a bear market in one area doesn’t hit your entire portfolio. And here’s something to think about: most people on average are retired for 20 years or more; it’s important to consider your risk tolerance for investing your money so it continues to grow beyond your retirement date and lasts a lifetime.
Trying to “time the market,” meaning taking your money out to avoid the bear and then jumping back in before the next bull, is often risky and can result in lower overall portfolio growth.
Stock market bears are inevitable, as are bull periods. You may manage those risks and opportunities differently early in your career than you do as you near retirement. Riskier investment portfolios may be a good idea early in your career, but many people move away from them as they near retirement. Understanding your risk tolerance is key.
One thing that can be helpful to think about is when you will need the money, and how much will you need at that time. It may be helpful to have some portion in a less risky asset class because you will need it in the next five years, while keeping the rest of the funds invested more broadly.
Many investments are target date funds, already diversified based on your projected retirement rate. If you’d like to be in a less risky fund you could move to a target date year that is sooner. For example, if you are planning on retiring around 2036, the 2035 target date may be most appropriate for you. But if you are looking for something less risky, maybe the 2030, 2025 or 2020 fund would be better. Watch the Investment Basics video presented by DRS.
More about market volatility and retirement investing
Voya Financial
- Market volatility (18 min video)
- Diversification
- Risk tolerance
Washington State Department of Financial Institutions
