How can one thrive in a bear market? ‘Play dead’ and four other strategies

Summary

  • Market conditions play a critical role in deciding the kind of returns received on investments.
  • Market conditions play a critical role in deciding the kind of returns received on investments.
  • However, it is the time when your understanding of the stock market comes into play.

Market conditions play a critical role in deciding the kind of returns received on investments. While a bull market is seen to bring about positive returns, a bear market is a period when stock prices come under pressure. A bear market refers to a widespread decline in asset prices – at least 20% fall from recent highs.

The period of negative returns is the most challenging period for investors since no one wants to be on the receiving end of falling stock prices.

However, it is also the time when your understanding of the stock market comes into play. There are some strategies that you can use to withstand a bear market.

READ MORE: How’s the agtech industry performing? A glance at five ASX agtech stocks

Here are five strategies to survive and make money in a bear market:

Source: ©Webking   | Megapixl.com

Don’t let fear drive your decisions

The best an investor can do amid a bear market is to remain calm and composed. A bear market brings with itself a plethora of negativity, which can easily seep into the psychologies of investors. Thus, experts advise to always separate their emotions from the investment decision-making process.

                       

Global Market Roundup || Why Did Wall Street Stocks End Flat Ahead Of Big Tech Earnings Week?

 

The famous saying “Tough times come and go but tough people carry on” should help you remain confident in yourself.  You must always remember that fear can cloud rational judgement of a situation. So, be calm and carry on.

READ MORE: Why is deflation more dangerous than inflation?

Investment re-allocation

There are some who advise selling investments to either hold cash or reinvest in more stable financial instruments to cut down the exposure of investments to the stock market as soon as one gets a hint of the bear market approaching. However, you must be careful while doing so. You can also miss out on the gains by selling all investment holdings once the market rebounds after a fall. You should properly measure the risks involved in this otherwise sound strategy.

Diversification

There is no better investment strategy than having your investment portfolio spread among stocks, bonds, cash, and other assets. The diversification should be done based on risk tolerance, time horizon, goals, etc. Since every investor has a different mindset, risk appetite, goals, and strategy, one diversification strategy cannot work like a charm for all. So, every investor should chart out a strategy that suits all his/her needs and expectations.

Source: ©Davidwatmough   | Megapixl.com

Dollar-cost averaging

Dollar-cost averaging is a wise strategy for long-term investors. You can purchase shares irrespective of price and end up buying shares at a low price when the market is bearish. As time goes by, your cost will "average down," leaving you with a better overall entry price for your shares.

Play dead when facing a bear

According to some experts, it is better to play dead during a bear market just as you would be advised to do in case of a real wild bear encounter in the woods. Trying too many moves can easily result in you becoming the bear's lunch. Playing dead in financial terms means putting a larger portion of your portfolio in money market securities, such as certificates of deposit (CDs), Treasury bills etc.

READ MORE: 5 exciting consumer staple stocks on the ASX

READ MORE: 10 hot ASX healthcare stocks for August

Comment


Disclaimer

Ad

GET A FREE STOCK REPORT


Top Penny Picks under 20 Cents to Fit Your Pocket! Get Exclusive Report on Penny Stocks For FREE Now.


   
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK