Bear Markets Explained
Bear markets are usually defined as periods when stock prices fall by at least 20% in a year. The opposite to bull markets, they are identified as sellers’ markets, as investors look to offload stocks and shares in fear that prices will fall further.
How to be prepared for the worst?
The worst thing you can do is panic. In times of crisis, it’s important to have a diversified portfolio and invest in securities like gold, real estate, and bonds.
Keep your investments simple — don’t overcomplicate them by choosing one asset class over another. Also keep them liquid: cash is better than stocks or bonds because you can always sell them whenever you need the money.
It’s also good to diversify across different asset classes (e.g., US stocks vs European stocks), since this will help reduce your overall risk exposure.
How to sail through the storm?
Basic advice for enduring a bear market:
- Invest in the market that you know well.
- Invest in what you understand.
- Invest in what you believe in, even if it goes against the grain of popular opinion (like investing in China during its darkest days)
- Invest in companies that are growing and doing well financially (i.e. profitable)
- Invest in companies that are run by competent management teams who can execute on their stated goals, making them more likely to succeed than their competitors over the long term — especially when times seem bleakest for everyone else around them.
How to remain invested?
The first thing to do is to remain invested. It’s easy to get spooked by a weak market, and when you’re afraid of losing money, it is tempting to pull out and wait for better times.
It may also feel like an opportunity not to invest in risky assets at all. But that would be a mistake — you’ll need those assets for your long-term goals, like retirement or college tuition for your children or grandkids.
If you can’t help but panic at the thought of losing money on investments you’ve made, consider taking some time off from reading the news and keeping up with financial markets (or at least take this time away from checking stock prices).
When we see our nest eggs shrink in value, it’s natural just to want things back as they were before. But remember: with downturns come opportunities, including buying stocks when they’re cheap.
However tempting it may be after an extended bear market period (or even during one), don’t rush into investing without understanding what you’re buying and why; doing so could end up costing more than any potential gains from trying too hard during this downswing
How to approach the market when it seems like there’s no bottom?
In the time of bear markets, it’s common to feel anxious about the market. You might have even felt this way in a bull market before. Here are some ways you can keep your head on straight:
- Don’t panic
- Stay calm and don’t sell
- Don’t buy just because you think it’s cheap (even if it is)
- Don’t buy just because you think it’s expensive (even if it isn’t)
- Don’t buy because you think it’s the right time (and maybe not a great deal), but don’t let this stop you from buying at all. If anything, now is probably one of the best times to get into some technology stocks or other companies with long-term growth potential that are seeing their share prices depressed due to macro issues like tariffs or trade wars. These businesses will be there when things settle down so don’t worry about missing out on any opportunity cost by waiting longer than necessary while waiting for better days ahead before investing in them.
Planning ahead is key
Bear markets are inevitable. That is why you should be prepared for them. A bear market doesn’t mean that you can’t invest or do anything during this time.
In fact, it is a good idea to take advantage of the lower prices and put your money into high-quality stocks that will be able to withstand the test of time. If you have been able to save money during a bull market, then now may be a good time to consider taking some out and investing it in gold or other hard assets that can stand up against inflation
Maximising Advantage
Bear markets are inevitable and they don’t last forever. All you need to do is be prepared, act smartly and remain invested, and if possible, buy in at the lower points of the market for the medium and long term to maximise your returns