A bear market is generally defined as a drop of 20% or more from recent stock market highs.
So which should you do during a bear market: back up your cash or invest more?
Keep reading to determine which option is right for you.
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Saving vs.
Investing in a Bear Market: Which Should You Choose?
So the question isnt Should I invest in a bear market?
Its Should I investextraduring a bear market?
Or Should I save my extra cash?
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The answer may be neitherif youve got debt.
But you cant fund your goals decades in the future if you couldnt afford an emergency that arises tomorrow.
before you get going investing extra, confirm you have at least a three-monthemergency fund.
From there, you might consider splitting extra money between savings and investments.
An emergency fund serves as a safeguard for your investments.
Likewise, if youre expecting your living costs to increase dramatically in 2023, hang on to your cash.
Prioritize a six-month emergency fund before you roll investing more.
Invest your extra money during a bear market only if these three things are true.
So double-check youre prepared for an emergency before you ramp up your investing.
How do you know if youre prepared for an emergency?
Theres no blanket rule here.
The stock market may be down about 20% year to date as of mid-December 2022.
But would you be OK if you invested extra money and the market tanked by another 20%?
If the answer is no, keep investing as usual.
Dont double down on investing just because you think youve identified the bottom.
A poorly timed stock market crash can devastate even the most steadfastretirement planning.
If you expect to make withdrawals in the next couple of years, you want extra cash reserves.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
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