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How to Invest During a Bear Market3 min read

Reading Time: 3 minutes

If you don’t know what a bear market is, just know that we’re in one now!  I hate jesting at the fact that people are losing money, but today I’ll try to give some insight as to how you should make investment decisions when in a bear market.

What is a Bear Market?

what is a bear market

A bear market happens when there is a sustained drop in investment prices.  Typically, the bear market occurs when a broad market index loses 20% or more in value from it’s most recent high prices.  This can be defined by the market as an entire unit, or simply viewed as the Dow Jones Industrial Average, according to NerdWallet.

While you’ll hear 20% being the barometer to define the bear market, the low’s can go much lower than 20%.  It also happens over a drawn out period, not just instantaneously.  While you shouldn’t be surprised to find some small rallies of relief during a bear market, the trend down is to be expected.  When investors find value in stocks that have taken serious nose dives from their recent high’s, this is when the bear market cycle begins to end.

Low consumer confidence and pessimism are what drives bear markets.  People are scared to invest and will push the sell button very quickly, which in turn drives stock prices down further.

When a market turns bearish, it takes all of the stocks down with it despite some of them reporting good earnings or having substantial successes.  The bear market typically happens either right before or after a recession.  If you are reading this near the time of publication, you can probably feel the recession on the horizon.  Now is the time to look into that gold IRA rollover you’ve put off for so long.  This could be a very wise move ahead of the oncoming recession.

The good news for investors is that bear markets are normally shorter cycles than bull markets, when the market goes up for a period of time (the opposite of a bear market.)

A bear market will last on average less than one year, and the bull markets can go on for 5, even 6 years. 

If you can find opportunities during a bear market, you can come out light years ahead on your investments.

How to Invest During a Bear Market

Here’s some advice on how you can navigate your portfolio during a bear market.

#1:  Dollar Cost Average

This is when you can dollar cost average (DCA.)  If you own x amount of shares of a stock that you bought at $50, and it’s currently trading at $20, you can essentially lower your break even point by buying during the bear market.  Every share you purchase at this discounted price helps your average price ($50) go down.

#2:   Diversify Your Portfolio

Mix up your assets, don’t stick to one sector or asset class.  Look into investing in dividend stocks.  Even if the share price drops, you’ll get paid dividends along the way.  If you re-invest dividends you essentially take care of my above recommendation of dollar cost averaging.  Bonds are also worth looking into since they can move conversely to the stock market.  Of course, you’ve also heard me talk a lot about allocating part of your retirement portfolio to gold.  These companies were hand picked by me as the top tier in the industry. I suggest you give that page a read and take action.

#3:  Look for Recession Proof Stocks

Diversifying your portfolio should include choosing stocks that will do well during market turbulence.  Look for utilities and consumer staples (necessary items), and even things people won’t give up, such as cigarettes and tobacco.  You can find a market index fund or ETF to gain investments into several companies in the sector.

#4:  Play the Long Game

Historically speaking, the bear markets don’t last as long as the bull markets.  If you are in the investing game long enough, you can come out ahead by having the confidence to invest in the bear market.  Make sure your goals include short and long term goals, and invest your money into those buckets accordingly.

Lastly, unless there is an extreme emergency, NEVER sell an underwater asset during a bear market.  

 

About 

Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.