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Stock market jitters? When a bear market can be a boon.

Since the markets have recovered from the 2008-2009 swoon, we have seen increasingly pessimistic predictions of another 'downdraft' or even crash. But if you are still saving for retirement, a bear market is your friend, not something to be feared.

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Michael Probst/AP/File
The bull and bear bronze statue stands outside the stock market in Frankfurt, Germany.

Since the markets have recovered from the 2008-2009 swoon, we see increasingly pessimistic predictions of another “downdraft” or even crash. Various pundits make recommendations to sell assets and move to cash to avoid the coming calamity.

As a thought experiment, imagine you have 10 years left to save for retirement.  You are given two patterns of future stock market behavior to choose from.  The first is a nice, steady 10-year rise in prices.  The second is the opposite: a steady, grinding drop in prices until the day you retire.

This article is for those of you who are still saving money for retirement. It is to tell you that a bear market is your friend, not something to be feared.

A bear market allows you to buy long-term investments at bargain prices. We know that markets trade in large cycles and tend to move slowly between high and low valuations.  We also know that how your investments behave in the first five to 10 years of retirement has a large effect on how much money you can withdraw from any given investment portfolio.

Given these two facts, you should actually want markets to grind down for the 10 years before retirement.  This would allow you to bulk up your purchases at great prices, and odds would increase that the markets would begin to turn up as you entered retirement.

This is all to suggest that savers should look upon downward market volatility as a good thing. Pretend your favorite department store has a sale on all the things you buy for the 10 years before you retire. By the time that day comes, you have bought all you’ll need for a long time at great prices. In the stock market, I’d go further and suggest that you concentrate your buying in the large asset classes that have dropped the most in any given year.

The only investors who should fear a bear market are those who are no longer saving actively.  Typically, these are retirees, who should have a cushion of principal-protected funds (even cash or bank CDs) that will allow withdrawals without having to sell assets that have dropped in price.

Think about it!  You may find that you react to financial news in the future in a different way.

Learn more about Steven on NerdWallet’s Ask an Advisor.

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