Having a bear market investing strategy is critical when you’re investing in an uncertain market. The right investments can make a huge difference in your portfolio and finances, after all, and you may find yourself floundering without an effective strategy when the economy is less-than-optimal.
Knowing you and your wealth manager are employing tactics that will help you manage your bear market investments can go a long way toward maintaining your peace of mind. This guide will help you understand the difference between bear and bull markets, what they mean for your investments, and how to prepare your portfolio to weather less lucrative times.
Understanding Bear Markets and Bull Markets
The first step to understanding wealth management and investment strategies is to take a dive into the difference between a bear market and a bull market. There are a few factors the differentiate the two, and memorizing them will keep you on the right track no matter what type of market you’re investing in.
- Bull Market
In a bull market, the market is on the rise. Most stocks are performing relatively well, and those that aren’t are seeing problems because of the business itself — not because of the economy as a whole. Overall, investors do relatively well regardless of the strategy they choose, because most stocks gain in value fairly steadily over time.
- Bear Market
In a bear market, on the other hand, the economy generally is not performing well as a whole. Most stocks are declining in value, and many investors may struggle to maintain their investments. The stock market may be highly volatile, with stocks changing in value on a regular basis. It’s thus critical to have a solid investment strategy, a deep understanding of your risk tolerance, and a game plan that will allow you to make the most of your investments and manage your personal finances regardless of any market changes.
Those who are new to investing may find bear market fluctuations to be uncomfortable or stress inducing, but it’s important to keep a level head. An underperforming market does not necessarily mean your portfolio is headed for failure.
What a Bear Market Means for Financial Wellness
Bear markets can mean several things for the economy. Generally, in order to establish a bear market, the stock market must have dropped around 20 points. That can mean a number of difficulties and economic challenges, including that:
- Employment may be more volatile.
Companies may need to reevaluate their staffing and costs, which means more people may struggle with job loss and difficulty securing new positions right away.
- Investors reevaluate.
Investors begin scrambling for long-term investment strategies that will allow them to maintain their personal finances in spite of changes in the market.
- Consumers shift how they act.
Consumer confidence drops, causing many people to spend less often and protect their personal finances more stringently. This, in turn, impacts businesses’ earnings, which leads to reevaluations of costs, which could create more issues with both revenues and employment.
- There’s a shift in the business pool make up.
Businesses, especially startups, struggle and are more likely to fail. They may have more trouble getting investors due to low risk tolerance or may have trouble bringing in the customers they need because of consumer confidence dips, employment problems, and more.
It’s critical for investors to have bear market strategies that will help them protect their short-term and long-term investments because underperforming markets happen on occasion. Bear markets usually last for a little under a year and occur every five to six, so every investor needs to have investment strategies that will carry you through.
6 Smart Bear Market Investment Strategies
As you navigate bear markets, some of these strategies may help you to maintain your portfolio and keep your bank account intact. It’s important to speak with your wealth management advisor to make sure you’re employing all the tips and tricks that are right for your investment strategy.
1. Choose the right investments.
Food stocks and personal care stocks, often known as “defensive stocks,” frequently do well even in uncertain markets because people need such items regardless of the overall economy. Your investment plan should include stocks that are likely to continue to see profits even during difficult times.
2. Look beyond the current situation.
It’s easy to get emotional when your stocks start losing money or your portfolio takes a hit. You need to take emotion out of the equation and look at things from a long-term point of view, however. A few things to keep in mind:
- Bear markets usually resolve within about a year.
- Take a look at how stocks and companies have performed in the past.
- Evaluate how the companies you’re interested in weather the current market and how they are likely to perform in the future.
- Often, bear markets are an excellent opportunity to invest in stocks you might not otherwise be able to afford.
- Within a short period of time, they may well allow you to make significant money when the market turns around.
You should keep a close watch on stock prices as the market changes. Ideally, you do not want to unload stocks when they are at rock bottom. Instead, consider holding on to those stocks until there is an upswing.
3. Diversify across trustworthy companies.
Regardless of the current state of the market, you do not want to put all of your eggs in one basket. Instead, make sure you diversify your investments across several different platforms and types of companies to make the most of your portfolio. Your wealth advisor can help you make sure you’re properly diversifying your investments.
4. Don’t get emotional when managing your investments.
Don’t invest in companies just because they “look good” or because you like them. Instead, choose companies with a solid performance record. You may want to look at how they performed in past bear markets to create a more effective investment strategy.
5. Keep it simple.
If you’re just getting started investing, keep it simple. Don’t try to run a complex strategy that will have you struggle to keep up with your investments. Instead, work with a financial advisor to create a strategy that can help you weather market dips and avoid unnecessary losses.
6. Buy index funds at regular intervals.
Investing in your 401(k) during a bear market is an excellent investment decision that can help increase your odds of reaching your goals. Buying shares when the market is down will help you diversify your portfolio at a lower cost than if you start investing in the middle of a bull market.
Often, the price of stocks and bonds is much lower. While you may take some losses in the early days of the bear market, you may find that the gains even out over time. The key is patience: You will need to watch the changes in the market and wait for it to start to gain again.
Are you looking for solid investment advice that will help you plan for retirement, improve your portfolio, or meet your other investment needs? Contact Bogart Wealth today to speak with an expert about any bear market investing strategies questions you might have.