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What Kentuckians should do in bear market territory

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LEXINGTON, Ky. (FOX 56) – The stock market’s meltdown Monday is now causing concern around 401k savings and for those looking to retire soon.

According to Investopedia, in a ‘bear market,’ an index like the S&P 500 can decline 20% or more over a sustained period of time—typically two months or more. Bear markets also may accompany general economic downturns such as a recession.

After the news hit investors of U.S. inflation hitting a 40-year high the S&P 500 closed in a bear market on Monday for the first time since March 2020.

Now it’s posing a threat to investors who have high account balances, as they much more to lose in bear market territory.

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Investopedia reported that in the 2007-2008 bear market, anyone with a 401k balance of more than $200,000 experienced losses of more than 25%. It took years for the market to recover, but what is going to happen to those who don’t have years and want to retire soon?

Lyle Hanna, President of Hanna Resource Group in Lexington, is looking to retire soon, and asked the same question.

“I keep the stock market on my phone so I look at it several times a day, and when all the indicators were red, it’s kinda scary,” Hanna said.

Hanna is referring to the rapid decline he saw Monday when the S&P 500 fell 3.9 percent. However, Hanna said he knew how he needed to respond.

“Seeing past bear markets made me realize, I should not go sell everything,” Hannah said.

When it comes to life savings, Hanna said he’s learned it’s never a good idea to ‘sell out and get out.’

“If you miss that bounce back, then you’ve really lost the money, right now, you’ve lost the money on the books, but if you sell it, then you’ve probably lost it for good,” Hanna said.

Today, Hanna said he’s trying to stay diversified and get advice from multiple people, including the president of DFG Advisory, J. Taylor Davis.

Davis said Monday’s bear market was “inevitable.”

“Historically, markets have been down or have a downturn on average one out of every five years,” Davis said.

Davis adds that it takes roughly 10 months for bear markets to recover.

During this time, old and young investors are going to have different approaches, because everyone’s financial goals are different.

“If you’re younger person, you’ve got a long time horizon until retirement, these bear markets are a fire sale,” Davis said.

However, for those looking to retire soon, like Hanna, there may be less time to make up losses.

“I did some calculation some years ago to see whether I should take social security now or wait, and it would take me 12 years to make up the difference, so I went ahead and started taking it,” Hanna said.

Davis said hopefully, the pre-retirees will have some assets that are not tied to the market and have safety net, “So they’re not selling stocks or equities for a loss.”

“For those about to enter retirement, be prepared for the inevitable, and have something on the sidelines; cash, cash values, and bonds that are protected against principal loss,” Davis said.

According to Davis, the biggest risk to retirees will not be the up and down market.

“But the loss of purchasing power due to inflation, so having a setup or having a plan that will keep up with growth of spending out there throughout their retirement becomes really important,” Davis said.

Hanna and Davis both recommend to plan for the inevitable down market, and get with a trusted advisory firm to walk through situations like the bear market today, because it may be a time where one cannot afford to not have a financial advisor.

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