What is a bear market & how can investors survive it?

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 What is a bear market & how can investors survive it?
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Highlights:

  • The bear market is when any security notch a loss of 20 per cent or more from its recent highs.
  • The S&P 500 index fell into bear market territory more than 25 times since 1928.
  • The bear market is an unavoidable part of the financial market, which cannot be ignored.

A bear market could be described as a period when the market or any asset has a significant price drop. Generally, a bear market is described when any asset or security loses 20 per cent or more in its price from the recent highs. The bear market could be applicable for any individual security like stocks, bonds, etc., or a whole index, like S&P 500, Dow Jones, etc.

It is evident from the recent market scenario that investors' confidence is slipping as they assess the macroeconomic headwinds hovering over the market. Meanwhile, the bear market also raises concerns over a potential recession due to the market's downward movement.

Given the recent uncertainties that have made the major US indices flirt with the bearish territory, investors are looking for ways to survive. Here we explore the ways that may decrease some of the stress of the investors amid the bearish sentiment in the market:

Be patient:

The bear market is an integrated part of the financial market that cannot be avoided. But that doesn't mean the investors should sit on the sideline during the period.

Some investors see the bear market as an opportunity to get hold of larger stocks at a lower price. Although history doesn't imply the future trading behaviour of the market, it is seen that the market generally rebounds after experiencing a bear market.

Focus on long-term:

The S&P 500 index, one of the key indexes that indicates the stock market's momentum, fell into the bear market 26 times since 1928. Investors who have been in the market for 50 years might have experienced more than a dozen bear markets during this period.

But rather than waiting for the market to regain momentum, investors should focus on the long-term goals during these periods.

Explore growth opportunities of the companies:

Besides looking for premium or quality stocks, look for companies with growth potential. The growing trends or the global shift towards a flurry of new things could help many stocks from the sector to grow in the coming days.

Hence, look for quality stocks at lower prices during a bear market, which might also help you reduce the risk factors.

What is bear market and how to invest in that period?

Take risks but diversify them:

Certain risks are always associated with the equity market, which cannot be ignored. But balancing the risks by diversifying your portfolio is what counts amid the bearish sentiment in the market.

Instead of looking for a particular asset or sector, go for different sectors or assets. Through this, if one sector stays in the negative territory, gains of the other sector might help you to offset the losses.

Bottom line:

Through September 28, both S&P 500 and Nasdaq Composite index marked their places in the bear market, with the former losing nearly 22 per cent from its January highs and the latter dropping more than 29 per cent in the same period.

However, some investors might be considering the positive sides of the bear market, given the prices of several premium stocks coming down. But the Federal Reserve seems to cling to its plans of continuing the rate jumps through next year to tame inflation.

So, besides being patient during the period, investors should evaluate the risks before betting on any assets.

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