A bull market and bear market are two terms used pretty extensively in the stock market. Many investors are aware of both terms but their reactions towards them are quite different especially towards ‘Bear Market’. It is time refers to the market situation when it is on the decline. It is the time even the savviest investors fear to invest in such a market. For an average investor, it is a quite intimidating time and appears challenging to get out of it.
Many times a bear market happens due to certain economic and geopolitical events such as the slowdown in business growth, anticipation of recession, policy changes, and rising unemployment. Additionally, there is no exact way to predict the bear market and how long it would last. These uncertainties put investors in a state of constant panicking that leads to losses.
We can say that it is the time when the actual patience of an investor is tested. If fear sets in, one can see his/her entire investment wiped out in a short period.
Today, we’re here with some of the market-tested strategies that can help you to survive in a bear market.
Strategies to Survive in a Bear Market
When the bear market begins, it causes a swirl of emotions that trigger investors in making hasty decisions. As a result, many investors lose money in the bear market. Thus, to avoid these bad decision making, we have brought some tested strategies to survive in a bear market which is below:
Re-allocate your Assets (Diversification)
The strategy you should use should be focused to survive the bear market not to make way to turn your losses into profits. Whether it’s a bear market or recession, you will be subject to losses especially when you’re carrying an equity-based portfolio. But, diversification of your investments can help you protect from the catastrophic impact of the bear market and keep your portfolio more balanced to minimize the possible losses.
By re-allocating your investments in different sectors or industries, stocks, bonds, mutual funds, and ETFs as per your risk-tolerance, time-horizon, and financial goals will allow you to avoid the potential negative effects of the bear market resulting placing all your eggs in one basket.
Practising diversification can help in benefiting from the declining market as most investment securities are available are discounted prices to invest for long-term. So, spreading investments across multiple-asset class during bear market will be like ‘Killing two birds with one stone’.
This is a strategy that can help most those investors who become overly aggressive in the bull market.
If your goal is to turn the bear market into an opportunity to build up your investment portfolio to stronghold your investment objectives then the rupee-cost averaging is a technique can serve you well! It is a technique used by many long-term investors who have the investment horizon of 10+ years to invest a fixed amount in shares at regular intervals. This, in turn, ensures that you get more shares when the prices are low and less when the prices are high.
This approach facilitates an opportunity to buy desired shares at discounted prices. As most stocks fall in the times of bear market, the rupee-cost averaging is an approach that can be used by an average investor to buy more shares so that when the market recovers, the shares increase in value.
Go for ‘Blue-Chip Stocks’
One way to benefit from the bear market is to invest in blue-chip stocks as these stocks are of large, well-established, financially sound companies with strong business models that tend to perform better even in adverse economic situations.
Having shares of blue-chip companies can ensure growth even in the bear market. Even in a bear market, the share prices of blue-chip companies’ fall, giving the right opportunity to buy at discounted prices and add some quality stocks within your portfolio to reap benefits when the market starts to recover.
Stay ‘Put’ – Do Nothing
If nothing works, then stop resisting – Go with the flow! When the bear market first begins, we start feeling anxious. It is the point where even many savvy investors made the mistake of pulling money out in selling-off their losing investment securities. But, then what happens next is, “You end up bearing loss and those who continue to hold onto their investments in dip benefits when the market starts to climb up again.”
If aren’t sure what to do in the bear market and out of tactics then it’s time to stay put and do absolutely nothing. In short, play dead! But, it’s not mean to submit yourself to bear market but to not make any hasty decisions of panic selling. Also, do not pull your money out of your losing investments just because you start seeing some other stock rising. The bear market has a habit to fool investors in giving false hints of recovery.
Have another Source of Income
It is a common myth amongst investors in believing that the bear market will lead to recession, putting economic in turmoil. Well, truth is not all bear market leads to recession. But, it can happen! So, always have a backup plan to ensure that it won’t affect you.
Recession affects unemployment and money-making. Since you cannot sell off your investments for money and no longer depend upon your job, having an emergency fund can benefit in providing with another source of income in such difficult times.
Rupee-cost averaging is great but keeping some money on sidelines warm you. On the contrary, it may help you in fulfilling immediate cash requirements.
Final Thoughts: –
Remember, similar to the bull market, a bear market is part of the business cycle. So, it is completely normal! If you do not succeed to make any profit in this market then it’s completely fine. You shouldn’t worry about what could instead focus all your attention in preserving what you have.
While you’re at it, please don’t be too cautious and pull everything out of the market. This will lead you to nowhere. Instead, if you had invested with long-term objectives, you will have to start once again. Focus mainly on diversification and re-allocation your assets in a way that you won’t bear much loss in the bear market. In doing so, you can grab the opportunity to buy value shares that are available at discounted prices that align with your investment goals.
The stock market is volatile, it is not supposed to stand still. The bull market and bear market are two different sides of a single coin. Accept both!