How to Invest for a Bear Market

One is from the fact that bulls tend to attack by goring their horns upward; bears, instead, often attack by bringing their claws downward. Another theory argues that the term “bear” originates from santa rally the early fur trade, where bearskins were seen as particularly risky commodities in terms of their price and durability. During a bear market, the bears rule and the bulls don’t stand a chance.

Most recently, the Dow Jones Industrial Average went into a bear market on March 11, 2020, and the S&P 500 entered a bear market on March 12, 2020. This followed the longest bull market on record for the index, which started in March 2009. Stocks were driven down by the onset of the COVID-19 pandemic, which brought with it mass lockdowns and the fear of depressed consumer demand. During this period, the Dow Jones fell sharply from all-time highs close to 30,000 to lows below 19,000 in a matter of weeks.

Bull vs. Bear Market: What’s the Difference? A Be…

The cumulative return for each period and scenario is calculated as the simple average of the cumulative returns from each period and scenario. Most of my columns are aimed at people who already have some involvement with stock and bond investing, often using mutual funds or exchange-traded funds. It’s written mainly for people who are still in school, or just starting in the work force, or just getting around to salting away money for the future. Although most stocks and sectors may fall during a bear cycle, some will buck the trend. And once the bear market ends, stocks in certain sectors may jump ahead of others. So, how might you benefit from potential stock or sector winners?

Avoid that outcome by practicing dollar cost averaging instead of market timing. Investing consistently allows you to realize incremental benefits from falling share prices. It can be scary to see stock prices fall 20% or more from a recent high — but the one thing investors shouldn’t do is panic. A more prudent approach is to regularly add money to the market with a strategy known as dollar-cost averaging. Dollar-cost averaging is when you continually invest money over time and in roughly equal amounts.

Hedge Your Bets With Dollar Cost Averaging

Between 1974 and 2018, there were 22 market corrections, and only four turned into bear markets. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. While bonds are less volatile than stocks, they can also experience prolonged drawdowns and losses. It’s entirely possible, albeit rare, for stock and bond bear markets to occur simultaneously.

A robo-advisor is an automated service, usually offered through a brokerage, which can adjust or rebalance your portfolio based on your personal needs. These tend to be less expensive than human investment managers. Bonds are debts issued by companies as well as states, municipalities and national governments.

Do your own research and make educated investment decisions based on what you learn and how it relates to your unique situation. Duke Energy is continuing its mission to provide its customers with quality, fairly priced services. As it does, it gives its investors stable returns, consistently paid dividends, and an easier time going to bed at night regardless of the state of the economy or broader market. Income investing veterans may be thinking, “DVN is only paying dividends because oil and gas prices are soaring.” But that’s not the case.

You shouldn’t wait for the announcements that the market is bearish; the best time to begin preparing for a market reversal is before it begins. The most important thing an investor can do during a bear market (once they’ve assessed their holdings accordingly) is to wait it out. It’s not easy watching headlines blare all day and listening to friends speak about selling everything off, as it only adds to your jitters. Investing is a game best played long, and what you do during the downturns will define your performance over time.

Smart Strategies for a Bear Market

The proper diversification is the one that keeps you in the game over multiple market cycles. The biggest challenge in a market contraction is to manage our emotions. I shared with App Economy Portfolio members a version of the “cycle of emotions” that comes with the market’s ups and downs.

• Investing in bonds is also a common strategy to protect oneself during a bear market.
• That stock may not have bottomed at $75 a share; rather, it could tumble 50% or more from its high.
• What’s more, if you invest in the entire stock market through index funds, you will be exposed to these things anyway because you will own pieces of the companies that engage, trade or service them.
• Similarly, a drop in investor confidence may also signal the onset of a bear market.

Again, during a bear economy, most stocks tend to fall; that’s to be expected. Remember that you’re looking to position your portfolio for an upcoming bull market and using the bear market to potentially give you a preparatory boost in discounted stocks. In a perfect world, you’d sell at the top of the market and reinvest at the low point. Unfortunately, even financial experts can’t predict market peaks and troughs consistently.

It feels like we are likely somewhere between panic and capitulation (though you could suggest I’m in denial). “This one is different,” is the doomsayer’s litany, and, in fact, every recession is different, but that doesn’t mean it’s going to ruin us. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources.

But the problem is that not all corrections have led to bear markets. Since some corrections have led to bear markets, investors become https://bigbostrade.com/ nervous when the market corrects itself. Investing in bonds is also a common strategy to protect oneself during a bear market.

In my article about 7 Rules For An Antifragile Portfolio, I discuss the importance of seeking low-downside, high-upside payoffs. Borrowing from Peter Thiel in his book Zero to One, I discussed the idea of only investing in companies that have the potential to beat all of your other investments combined. While this idea may sound romantic at first, it can be very effective. A thesis should not depend on what could happen within hours or minutes.

How long do bear markets typically last and how severe can they be?

Conversely, if you’re young and saving for retirement, there’s no need to change your asset allocation in anticipation of a bear market. Of course, once you begin investing, don’t expect to see immediate returns amid a bear market. Instead, focus on positioning your portfolio for the next bull market. Remember that what’s happening in the market today isn’t terribly important unless you need to liquidate your stocks right now. If you own good companies, they should survive the downturn and recover strongly. Waiting for a recovery often proves to be the most profitable investing strategy in a bear market.

Motley Fool Returns

The largest companies driving the US indices higher in the past decade have been incredible cash-flow machines. Apple (AAPL) crossed $100B in free cash flow in the past 12 months. I would emphasize financial fortitude and cash flow in the current macro environment, given the potential for a liquidity crisis. Again, I wouldn’t bet the farm and invest all at once (as explained above), but it doesn’t get better than slowly accumulating shares of great businesses while they are on sale.

What’s the Difference Between a Correction and a Bear Market?

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. What follows are four top-tier growth stocks you’ll regret not buying in the wake of the Nasdaq bear market dip. Many investors’ stance on risk has changed since the bear market set in. If you’ve become more risk-averse and want a stable utility play with great dividends to fill the void in your portfolio, UGI is a compelling pick.