In this blog, you’ll learn how deep the stock market’s bear market can affect your personal finance. With the stock market being up one day and down the next, I want to clarify what a bear market is. It’s when the stock market as a whole is overpriced and needs a price reduction. But when the stock market is still inflated then the price reduction increases to an uncomfortable number. This is like when you see something at Target go on sale and then you see it on clearance. They lower the price because most likely it was an overpriced item when compared to value.
What’s a bear market?
Technically, a Bear market is when the S&P 500 or the DOW Jones goes below 20% from its 52-week high. Unlike corrections that range from a loss of 10%-20% from the 52-week high. Which historically takes around 4 months to recover. A bear market will result in longer recovery time and more losses ahead. With a historic recovery ranging in around 14.5 months or even 2 years.
How does it affect me?
Now you might be wondering why these terms like bear market even matter if you’re not in the stock market? Now let’s break down how this economic domino effect reaches other areas in your life that you might not realize. Because it’s super important to be aware of how the economy positions your personal finances during any economic turn.
One thing a lot of people don’t realize is that their company’s retirement account is actually invested in the stock market. Same thing for traditional IRAs, Roth IRAs, and many HSA accounts. A bear market would also affect your family if your parents and relatives are in retirement or heading into retirement. They may not have enough saved and invested if the economy struggles into a bear market. It is important to keep your loved ones informed about how the economy is going.
Employment and Business Owners
When it comes to bear markets, they have a tendency to quickly affect your company and other businesses. The main area of concern is not hitting projected revenues and losing clients. This can affect job cuts, reduced hours, and pause bonuses or raises. This could also put a hold on new hires and fewer people spending money into the economy. This is something we all witnessed during the great recession, where a lot of people lost their jobs and businesses. A big reason to take the health of the economy into consideration to better position yourself.
These causes and effects could hurt more than just your personal finances, but your family. A bear market could position you to drain your emergency fund and make it hard to make ends meet. But most of all it can create tension between spouses and family dynamics. During hard times divorce is on the rise, while births are on the decline. This is something we all witnessed with many friends and families. One of the most important things to do before the economy shifts is to protect your financial home by starting with your financial foundation. This is bulking up on your emergency fund and living below your means with no debt.
To wrap things up, I wanted to share how close to home a bear market could affect your personal finances. This blog post isn’t to scare you, but to make you aware of the financial language being used. I believe that the best way to protect your finances is by understanding what is being said. It’s also very important to mentally prepare yourself for any economic downturn and upturns in the future. We can do this by practicing how to control our emotions around money and not act impulsively.