Should I Invest or Save Extra Money in a Bear Market?

You know you’re supposed to buy low and sell high when you invest, so a bear market should be a bargain sale. A bear market is generally defined as a drop of 20% or more from recent stock market highs. The S&P 500, often used as a benchmark for the overall US stock market, has been hovering around bear market Territory for the latter half of 2022.

While everyone wants to buy low and sell high, you may be tempted to do the opposite when the reality of a bear market sets in. It’s tough to throw your money into your 401(k) or individual retirement account (IRA) each month and watch the balance sink. And if you’re worried about a recession or a layoff on top of a bear market, clinging to cash can seem extra appealing.

So which should you do during a bear market: Save your cash or invest more? Keep reading to determine which option is right for you.

Saving vs. Investing in a Bear Market: Which Should You Choose?

Before we go any further, let’s be clear: We’re not suggesting you stop investing due to a bear market.

Practicing dollar-cost averagingin which you invest a certain amount at regular intervals — like each pay period or month — regardless of the stock market’s performance has historically been a winning strategy. Also, taking advantage of your employer’s 401(k) match is always a smart approach unless you’re struggling to pay for basic expenses.

So the question isn’t “Should I invest in a bear market?” It’s “Should I invest extra during a bear market?” Or “Should I save my extra cash?”

The answer may be “neither” if you’ve got debt.

If you have high-interest debt — think anything over the 6% to 8% range — like credit cards or a private student loan, paying that off first may be the best move. Paying down a mortgage or a car loan is a lower priority , assuming you’ve locked in low interest rates.

When to Save More in a Bear Market

Buying stocks on sale during a downturn can be a smart move,…

Source link

Recommended For You

About the Author: News Center