If you’ve ever visted New York City, you may have seen the famous bull statue in the financial district.
That bull is considered a sign of optimism, indicative of what’s known as a bull market. A bull market generally refers to a time when the stock market is rising and is expected to continue to rise, but it can refer to any group of securities in which that is the case.
The reverse of a bull market is a bear market. A bear market is generally a period marked by pessimism and potentially falling prices in the stock market.
The good news is that we are currently enjoying the longest bull market on record. For more than 10 years, we’ve experienced a rising market that has seen numerous record highs and only a few market corrections (in this case, drops) to level it off.
While many investors, pre-retirees and retirees have enjoyed the fruits of a long-term rise in the markets, we unfortunately can’t expect that to continue forever. And that means the potential for a bear market exists.
While the causes of bear markets often vary from event to event, many economic slowdowns usher in bear markets. Signs of an economic slowdown include low employment, shrinking disposable income, weak productivity and a drop in business profits. A market correction can easily transform into a bear market due to prolonged periods of investor uncertainty. Bear markets can develop when the market isn’t able to support stock prices — like when the tech bubble burst in the early 2000s.
When we experience a bear market, sooner or later, will you be prepared for it? And how will you react? During those times, it may be more important than ever to remain committed to your overall investment strategy. On the flip side, your strategy may need a change.
One tool we use at our company to help you evaluate your strategy and whether you should stay the course or change it is the Color of Money Risk Analysis. This 11-question self-assessment quickly and clearly evaluates your current financial outlook and provides a Color of Money Risk Analysis score.
The Color of Money Risk Analysis is a simple way for you to categorize your retirement assets into red, yellow, and green money, giving you an easy way to see how your assets could be allocated.
Red money are assets that are subject to risk and that can lose value but that also provide growth opportunity.
Yellow money assets, like red money assets, are subject to risk and can lose value but are professionally managed. Professional money managers could help reduce risk and provide growth opportunities.
Green money assets have a less amount risk. They may not have as much growth potential as other assets, but your money is less likely to shrink.
Once you’ve received your score, we can begin analyzing how your savings is currently allocated. From there, we’ll help make sure your assets are properly aligned with your risk tolerance.
No matter if you use our Color of Money Risk Analysis or another tool, there is value in having an up-to-date understanding of your risk tolerance. Talking to a financial services professional is a great way to get started in that direction.
That way, when a bear market inevitably arrives, you might feel more prepared for it.