- Global bourses have remained uncertain so far in 2022.
- The ASX 200 is down over 2% in the past 12 months.
- Experts always advise to maintain calm during weak market conditions.
Global markets (including the Australian stocks) have traded on a volatile note since the start of 2022. A variety of factors ranging from interest rate hikes, geopolitical tensions to rising inflation have infused enough volatility into the markets, severely hurting investors’ investment portfolios.
While a bull market can ensure good returns, a bear market eats into earnings. It would not be an exaggeration to say that a bear market presents the most challenging conditions for shareholders.
But have we already entered a bear market?
To discuss this further, let’s first see how the markets worldwide define a bear market? A stock market is said to have turned into a bear one if asset prices decline at least 20% from their recent highs.
Talking about the domestic market, the ASX 200 is down over 2% in the past 12 months. On a year-to-date (YTD) basis, the benchmark has fallen over sizeable 7%.
So, in that sense, the Australian market has still not yet entered a true bear market. Investors have seen several ‘buy the dip’ rallies arising on a regular basis after pullbacks. But there are sectors, which have seen their valuations halve in the recent months.
However, experts always advise to maintain calm during weak market conditions. There are a few investment strategies that investors can employ to stay unfazed during a bear market.
On this note, let’s discuss five such strategies to survive and flourish in a bear market:
Maintain calm and carry on
The first and foremost is to remain calm and composed during a stock market rout. A bear market can easily spread a lot of negativity, which can easily seep into investors’ psyche. So, one must desist from mixing emotions with the decision-making process during investment.
Another tip is to ensure that you don’t try to time the market. In fact, timing a market is never easy – be it a bull or a bear market. Even the most seasoned stock market investors refrain from doing such.
Diversification is defined as a risk management strategy that combines a variety of investments within a single portfolio. Investors can look at spreading their portfolios among stocks, bonds, cash, and other assets. However, investors should clearly know their risk tolerance and goals while going for diversification. A single diversification strategy can’t be applied to all.
The re-allocation of investment involves realigning the weightings of a portfolio of assets by periodically buying or selling assets. Investors should look at selling investments to either hold cash or allocate investments in more stable financial instruments to bring down exposure to stock market as soon as a bear market starts to approach. But investors should be careful while doing so as they can easily miss out on gains when the market rebounds.
Dollar-cost averaging (DCA) is about dividing the total amount to be invested across periodic purchases of a target asset. It helps to bring down the impact of volatility on the overall purchase. Investors can buy shares irrespective of price and end up buying them at a low price during weak market conditions.
Play dead when facing a bear
Imagine you have come across a bear while walking in the jungle. What can you do to save your life in such a scenario? The best is to play dead as trying too many moves can end up in you becoming the bear's meal. In the world of finance, playing dead is referred to as putting a large portion of one’s investment portfolio in safe money market securities, such as treasury bills.
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