Nothing is as tricky as when you’re trying to find your way around the bear market. As a first-timer, you might be asking how best you can invest in a bear market.
Our step-by-step guide will help intimate you on how best to go about it. Kindly, read on.
The table of contents above will give you an overview of this investment article.
What Is Bear Market?
A bear market is a market condition in the stock market where prices declination than that of a market correction by 20% or even more.
While the benchmark for a bear market is 20%, there is always a deeper dip that happens occasionally.
Although there have been over 22 market corrections, only four bear markets have happened in the last 47 years ie since 1974. Bear market durations vary from three months to a little over three years.
So, it is an ideal time for you to get started as a new investor where you will be free to start building positions in the market with index funds and at lower rates.
However, you must acquaint yourself with some of the primary bear market tips for investing.
What are the Causes of a Bear Market?
Basically, a bear market happens prior to or after a nation’s economy is in recess. There are some signals that give investors a highlight that the bear market is about to occur.
These signs are wage growth, interest rates, inflation and hire for labor.
Besides the aforementioned causes of the bear market, there are other reasons why it occurs. Examples are; oil-price movements, extravagant lending, widespread investor speculation, over-leveraged investing, etc.
See Also: 8 Ways To Make Money In A Bear Market
Difference Between a Bear Market and a Bull Market
Basically, a bull market is the direct opposite of what a bear market means. It occurs when there is a rise in stock prices and is accompanied by high consumer confidence, a low level of unemployment, and strong economic growth.
This rise is usually by 20% and investors in the stock market tick its start as a prelude to a bear market.
Furthermore, a bull market is a sustained uptrend in stocks which literally gives way to an all-time high.
How To Invest in a Bear Market
This is about the most inconvenient and troubling times for investors because no investor likes to see the value of their stocks go down.
So, we’ll give you a few guidelines to help you invest in a bear market rightly.
#1. Think Long-Term
If you are one who always freaks out when the market movement isn’t favorable, then, it is certain you shouldn’t be investing in stock markets.
It takes a lot of courage on the side of an investor to not hurriedly back out when stocks plunge deep. However, if you keep selling your stocks when they are falling and re-buying when bull markets happen, it will be very difficult for you to find a stable stock market worth your investment.
So, thinking long-term means you have to groom yourself to the point of not wanting to sell your stocks and own them for the long run.
#2. Focus on Quality
In times when there are uncertainties, it is important you fix your gaze on high-quality companies that outrun their counterparts who can’t do much at the time and invest with them.
#3. Avoid Timing the Market
You will be at the losing end if all you do is time the market to know when stock values are doing lower so you can invest.
It is best you buy stocks for the sake of owning the business rather than buy just because the prices are low.
You can employ an approach known as dollar-cost averaging to smoothen out your purchase price over time. Although bear markets can be scary as hell but it will bounce back definitely.
#4 Establish a Market Portfolio
When bear markets happen, the best strategy to employ is one where you have to gradually build stock positions over time even if their prices are beginning to fall.
If the falling persists, you could leverage on the newer fall rather than throw in all of your money at once.
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What are the Strategies I need to take to Overcome a Bear Market?
There are a plethora of strategies you can employ to thrive in a bear market season. So, if you read through, you will find out the strategies you can follow to overcome a bear market.
#1. Selling Out
This is one of the safest measures through which you can sustain your stance in the bear market and of course, the most extreme of all measures.
What you need to do employing this strategy is to sell your investments and either re-invest your cash into more valid and short-termed bonds or choose to hold on to the cash.
This way, you keep your exposure to the stock market at the barest minimum and also reduce the effect of what the literal ‘bear’ can cause you.
#2. Playing Defense
Your ability to keep up with strategic points in the stock market is a very defensive thing to do and it usually involves making investments with much bigger companies who have very balanced sheets and renowned history of operations.
This is advised because the more financial security a company has, it is less likely to be taken away by the storms of stock downturns.
#3. Shopping for Bargains
At this time, you can also choose to buy more stocks at cheaper rates. Go for stocks with many values and ensure you pay your dividends.
Also, make several other alternating investments that are valuable.
Just as a bear market is a decline in the stock market, it ought not to be dreaded. With some safety measures also known as strategies put in place, you can do very well to surmount the dark clouds that come with a bear market and make much better investments.