Investment Tips for a Bear Market
A bear market is a term for a market condition where prices decline for a prolonged period. Normally, it refers to conditions in which the prices in the market drop by 20% from the high points it has achieved recently.
Bear markets refer to market conditions in general although it can also be applied for specific commodities. Bear markets normally accompany negative market conditions such as a recession.
Things to Keep in Mind During a Bear Market
No one wants to be caught in a bear market but in case that happens to you, it’s not the end of the world. Here are some strategies that you can use so your investment can survive a downturn in the market.
Don’t Be Carried Away By Fear
This might be easier said than done. It’s easy to get carried away by your fear especially if the market is in a volatile situation, but in most cases, it’s best not to give in to your fears and try to minimize your short-term losses.
Fear and worry can hamper your decision-making. Making impulsive decisions based on those emotions is likely to result in losses, especially for the long-term.
Diversify Your Investments
You must have heard this tip before and it cannot be overemphasized. It’s crucial to spread your investments so you’re not putting all your money in one basket, so to speak. You need to divide your portfolio, but there are several things you need to consider like your risk tolerance and goals.
If you have a sound diversification strategy, you can avoid losing all your money in one single blow.
Don’t Invest Everything
There is always an element of risk when it comes to investment. There is always the possibility that you can lose your money. This means you should not invest money that you cannot afford to lose in the first place.
That means you need to have a separate emergency and retirement fund. You do not use those as part of your investment so the effect of the bear market on them is minimal.
Watch Out for Great Opportunities
You can choose to see the bear market as an opportunity to find great values. That’s how Warren Buffet deals with a bear market. This is the time to look for great deals because good companies also suffer along with bad ones. The trick is knowing what to look for. You need to identify a good and strong company and distinguish it from the weak ones.
Invest in Defensive Stocks
Defensive stocks are those that perform better even during difficult times. Generally, those are the stocks that belong to industries that thrive on even during a recession like those that manufacture household products like soaps and toothpaste. Those are stable stocks that can maintain their value.
These are just a few of the strategies that you can use for dealing with a bear market. As you can see, if you’re properly informed, you don’t have to suffer that much when the bear market comes along.