When the economy is down, it’s easy to feel frustrated, worried, and anxious. After all, it’s hard to see the Dow dropping every day and still feel secure. However, experienced investors know that these economic downturns offer an opportunity to get a great deal on certain investments. As long as you’re in a good position to invest, the bear market can be your friend.
Officially, a bear market occurs anytime the prices of securities drop 20% or more from their recent highs. Investors generally watch an index like the S&P or the Dow Jones to mark these changes, though individual securities are considered to be in their own bear market if they fall at least 20% over a period of at least 2 months. Bear markets usually come alongside recessions and other indicators of an economic downturn.
Before you invest in a bear market, make sure that you have yourself covered. Don’t spend money that you might need immediately or that you can’t stand to lose (at least for a while) if the market continues to fall.
Make sure you have at least six months of living expenses put away, just in case you need them. Since investing in a bear market means leaving your money in play for a while, you won’t be able to rely on it if financial needs arise. If your emergency fund isn’t in great shape, shore it up before you invest anywhere, especially in a bear market.
Don’t invest cash that you’re going to need for other purposes. You don’t want to make yourself cash poor anytime, but especially during a bear market. After all, your need for cash could become urgent and you don’t want to lose money on your investments because you have to take them out of the market quickly.
Don’t just throw your money into the market randomly or without some research, even during a bear market. Make sure you’re investing in ways that make sense during this crazy time.
If stocks that traditionally do well are currently at low prices, it might be the time to buy them. You’ll want to make sure you do your research and buy companies that are likely to rebound well when the market goes up again. You’ll also want to make sure that the company isn’t likely to go bankrupt during the economic downturn.
During the Bear Market that occurred from 2007-2009, investors who bought index funds regularly through their 401(k) found that, by 2015, they had made a significant amount of money. It’s not a good idea to go all-in, but keep buying consistently even if the market isn’t doing very well. When it does rebound, those cheaper shares will be worth more than you might imagine now.
Whenever you invest in a bear market, plan for some volatility. Don’t try to time the bottom of the market and don’t worry too much if it continues to go down after you make your purchase. Part of what a bear market does is struggle to get back up again, and that struggle looks like volatility.
Once you’ve invested, hold your investments unless it looks like a company is going to go bankrupt or until the market starts to climb again. When you commit to holding your shares from the moment you buy them and you have the financial freedom to hang onto them, market volatility won’t matter so much. Instead, you’ll be able to ride the waves until they crest once again.
It’s hard to make a profit on most investments during a bear market but it’s easy to invest and hold on for your future financial well being. Make sure you’re in a good place to invest, choose your investments well, then stand back and wait until the market goes up once more.
No comments yet. Be the first to get the conversation started. Here's some food for thought:
Do you have any thoughts?