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Surviving a bear market

Experienced investors know that market conditions can change quickly. A bear market—defined as a decline in stock prices of 20% or more over at least a two-month period—can occur with little warning. It’s how you prepare for a bear market that will be important to your long-term investment performance.

Give your portfolio a chance to defend itself

The best way to prepare for a bear market is to create a sound investment program—one that’s based on your time horizon, risk tolerance, and financial situation, not the market’s mood swings. If you’re not sure whether your retirement plan portfolio can defend itself against a bear market, answer these questions:

  • Am I well diversified? Diversifying—that is, spreading your assets among stocks, bonds, and cash investments—helps reduce risk. If one investment takes a tumble, the others might hold up, cushioning the overall blow to your portfolio’s value.
  • How long do I have to invest? Your time horizon includes both the years until you retire and the years you’ll spend in retirement. If you’re years from retirement, you’ll have time to ride out much of the market’s ups and downs.
  • Do I lose sleep when the market drops? If your tolerance for risk is low, you may want to invest more in bond funds and short-term reserves and less in stocks. Keep in mind, however, that no investment is risk-free. Bonds can lose value too, and returns from short-term reserves may not outpace inflation, reducing your spending power in retirement.
  • Are my personal finances in good shape? If you have a well-established investment program that includes an emergency fund of three to six months’ living expenses, you are more likely to withstand a market downturn.

Check your portfolio

Complete Vanguard’s Investor Questionnaire at to find an investment mix that is right for you. Then compare that investment mix with your current allocation, which you can find on your account statement or online at For a paper-based version of the questionnaire, call Vanguard Participant Services at 800-523-1188.

For more information about any fund, including investment objectives, risks, charges, and expenses, call The Vanguard Group at 800-523-1188 to obtain a prospectus. The prospectus contains this and other important information about the fund. Read and consider the prospectus information carefully before you invest. You can also download Vanguard fund prospectuses at

Vanguard is a trademark of The Vanguard Group, Inc. All marks are the exclusive property of their respective owners.

© 2008 The Vanguard Group, Inc. All rights reserved. Used with permission. Vanguard Marketing Corporation, Distributor of the Vanguard Funds.

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