Bear Market-7 Strategies to Handle One
“Bear market” is a term that refers to a widespread decline in the values of investments. The drop in value must be at least 20%. In this article, we will go over 7 strategies for successfully handling a bear market.
Keep Your Emotions in the Proper Place
When you are investing, it is vital that you keep your emotions separate from your investment decisions. An unhealthy level of fear can cloud your thinking and can cause you to make investment choices you will later regret.
Implement Dollar-Cost Averaging
If you have a long-term time horizon, implementing dollar-cost averaging can help you to survive a bear market. Dollar-cost averaging is when you periodically purchase stocks, regardless of price. You may purchase some stocks at a low price when the market is down or purchase at a higher price at other times. The thought process behind this methodology is that the combined price you pay for stocks will average out and the average will give you overall the best price per share.
Sometimes the best thing you can do during a bear market is to do nothing. Depending on your circumstances, trying to fight back can be dangerous. If you do decide you need to adjust your investments, do not make these changes suddenly. It is the best procedure to meet with an investment advisor who can guide you safely and accurately.
It is vital that all investors have a properly diversified portfolio. This means that you should have your portfolio spread among stocks, bonds, cash, and alternative assets. This allocation should be done in a way that considers your risk tolerance, time horizon, and goals. By diversifying your assets, you can help reduce the negative effects of a bear market.
Invest Only What You Can Afford to Lose
As an investor, you should never invest funds that you cannot afford to lose. Any funds you will need within a short time should not be used to invest in the stock market. You should only use funds you have time to leave in the market to recoup your losses on.
Look for Deals
A bear market can be positive, in that it can provide great opportunities for you to take advantage of. It can prove to be a time that you can purchase a share in a valuable company at a value price.
Take Stock in Defensive Industries
It can be wise to invest portions of your portfolio in defensive stocks. This term refers to securities that typically perform well during a bear market. Examples of defensive stocks include shares in companies that produce household non-durable such as toothpaste, shampoo, and shaving cream. These stocks can be valuable because they can provide consistent dividend income during any market period.
Surviving a Bear Market
It is possible to successfully survive a bear market. By implementing these 7 strategies and working with your investment advisor, you can weather the storm.
Questions? Want to schedule an appointment? Contact us by clicking here.