In the wake of a record stock market, the last thing most investors think of is a coming bear market. Expect one, though, because history shows that what goes up almost always comes down. The steps you take now will determine how well you survive the next bear market.
IT’S NOT ALL BAD
A bear market is one in which prices decline at least 20% from their high, as often measured by the Standard & Poor’s (S&P) 500 or the Dow Jones Industrial Average (DJIA). While you wouldn’t normally associate bear markets with good news, there is some during a down market.
When you realize more investment losses than profits during a given year, you get to deduct the difference on your income tax return, just as you have to report realized capital gains. (Unrealized gains and losses have no effect on your tax picture.) Your tax professional can tell you which investments qualify, the annual limits and more.
REVIEW YOUR INVESTMENTS
You can take some common-sense steps that may help you survive a bear market before one happens. Rebalance your portfolio regularly. Recent stock market increases, for instance, can increase stocks as a percentage of your portfolio more than you intended.
Don’t panic, either. If you have conservative investments that match short-term goals and you can wait out price swings on solid investments for your long-term goals, you may want to wait out the volatility.