Perhaps most of us expect the stock market to be somewhat volatile, moving up and down based on a number of economic factors. But what happens when the market takes a plunge? Here's a short Q & A to help us better understand a Bear Market.
What is a Bear Market?
A Bear Market is when stock market prices decline and continue to fall over a prolonged period of time.
How does behavioral finance affect decision making?
Behavioral finance refers to the psychology of how people handle their money. The way you handle your money can be impacted by your environment, your history with money, your perception of money, and more. This also includes emotions and biases when it comes to money and finance as well. All these things can have both positive and negative impacts on how you handle your money.
How do overreactions and bad decision making compromise long term financial goals?
Because of behavioral finance, those emotions and biases can cause people to make bad decisions that unfortunately can compromise long-term financial goals. Case in point, when the stock market takes a plunge as in a Bear Market, it’s only natural to want to pull your money out and cut your losses. Afterall, you may feel like you’re watching your nest egg waste away to nothing. However, to act could be an overreaction with far worse consequences than leaving your money in place and or making some well thought out and intentional moves with your money.
How do I weather a Bear Market?
The best way to weather a Bear Market is unique to your financial situation. Your best option is to meet with your financial advisor who can help you keep the big picture in mind so you remain on track to reach your financial goals.
Need a financial advisor? We can help. Contact CDC Federal Credit Union for more information.