A bear market can have a greater impact on your life than you might expect, which is surprising since most people have never heard the term. You may have heard of the term “bear market” before but may be unfamiliar with its meaning. A bear market generally refers to a significant downtrend in a stock market index such as the S&P 500 or NASDAQ. More specifically, analysts will often say a bear market exists when the markets are down 20% from their previous highs.
Unfortunately, due to the massive amount of global economic and political instability, many of the world’s developed nations entered bear market economies during the later part of 2011, due to high unemployment rates and political dysfunction. Unfortunately, a bear market can have many negative consequences for the average individual, which are listed below.
1. Your retirement savings are likely depleted
If you have a 401 k or another type of registered savings plan, there is a likelihood that some of it was invested in the stock market. Unfortunately, a lack of market growth has made it common for the average person of retirement age to have lost money in their retirement savings account over the last 10 years.
This is extremely problematic because younger workers are having a very hard time finding jobs, in large part due to retirement age workers who cannot afford to stop working.
2. It may be tougher to get a loan
In times of fiscal instability and uncertainty, banks tend to tighten the purse strings. This means it will be much more difficult for small business owners to get loans or for people to get financing to buy homes, cars or other necessary items. This is especially problematic because these loans are necessary to stimulate the private sector and the economy as a whole.
3. Job creation is in a slump
If you are looking for a job, a bear market is a terrible time to be looking, especially if you are pursuing a career in the capital markets areas. It is expected that Wall Street firms will cut pay by about 30% by 2012 and many more workers will likely be laid off. It’s clear that these economic times are not conducive to high rates of employment, as the United States unemployment rate remains stubbornly at 9%.
A bear market is certainly not a positive thing for many reasons. However, it is important to understand what a bear market is so we can anticipate and cope with the effects that a bear market can cause.