How to Survive, Adapt and Prosper with a Bear Market? (Stock and Mutual Funds Investments)
What is a Bear Market?
Bear Market is "a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment".
Generally, a bear market will put the security that you already own to drop in price. When stocks begin to fall, it is hard to predict when it is going to hit rock bottom. You will probably see great losses and a drop in the market's price.
Is Bear Market Good or Bad?
We do not have to fear the big bad bear market, but rather by employing some techniques and strategies, we can do quite well during those times when many others are suffering major losses to their portfolios. A good investment made during a bear market will gain you a great profit in the future.
Here are the things that you can do to survive a bear market:
1. Keep your Fears in Check
The first thing to do is to not panic and put your emotions aside. Losing money hurts, however, keep in mind that bear markets always recover. No matter how long the recession in the economy is, the market will eventually find its way to rise again and recover.
Learn that a bear market will create more buying opportunities for you and may greatly help you when the market eventually recover.
2. Create the Right Investment Allocation
The key to making it through a bear market without losing sleep comes from the construction of your portfolio. Whatever your goal is, you want to make sure your investments are doing what you intended.
If you have taken the time to create an investment that is appropriate for your risk tolerance and objective, then a bear market shouldn’t concern you. For instance, if you are a long-term investor, you might be invested completely in stocks. You should only be invested this way if you understand, and are comfortable with the fact that with significant gains may come significant losses at times. That is just the nature of investing entirely in stocks.
3. Take Advantage of Cost-Averaging
Cost averaging involves saving the same amount of money at the same time no matter what is happening in the stock market. There are years when the stock market doesn’t gain value, but, over the long-term, stock prices increase. Because stocks increase in value over long-term periods and we don’t’ know what will happen during the short-term, cost averaging offers a way to average the stock market.
Since the same amount is invested on a regular basis, you’re making investment purchases when prices are high, low, and everywhere in-between. Consistency is the key.
This is an advantage to the average investor because it just means when the market is crashed, you’ll be buying more shares with that money. The more shares you have, the greater the increase in value when the market recovers. So, think of a bear market as a sale at your favorite store when you can buy things at a discount.
3. Gain Profit from Falling Stocks
Take great caution when investing. Some are encouraging investors to get in while the markets low - but we don’t know how much lower it will go and how it will shake out in the recovery. Consider investing in blue-chip companies that have great potential to recover well in the market in the future.
Blue-chip companies are the multinational firms that have been in operation for a number of years. Blue chips generally sell high-quality, widely accepted products and services. They are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
Once again, consider bear markets as stores with great things on sale. Gain profit from falling stocks but only invest money that you afford to lose. Consider this as a great time to buy blue-chip stocks while they are down.
Whether the market recovers quickly or years from now, the most important thing to remember is, it will recover. And so will we.
© 2020 Krishna