When you hear the term “bear market,” what do you think of? For many investors, bear markets can be a source of fear and anxiety. But unlike a real bear, we can’t run away from them—bear markets are an unavoidable part of investing that comes with the rise and fall of the market value. They can even provide good investment opportunities with the right strategy. Let’s discuss what a bear market is, and some tips on how to conserve and hopefully even strengthen your investments during a market downturn.
What is a Bear Market?
A bear market occurs when the stock market declines 20% or more from its most recent high over a prolonged period of time, generally two months or more. Bear markets can happen in connection to general economic downturn, such as a recession, though this is not always the case.
They can occur in the overall stock market, to individual indexes like the S&P 500, or with individual stocks and securities. When an individual stock turns “bearish,” it is unlikely to affect the rest of the stock market. Though when entire indexes or the entire market turns bearish, most stocks will begin to decline.
You may have also heard of a bull market, which is the opposite of a bear market—a prolonged period of gains of 20% or more.
How should I Invest During a Bear Market?
- Don’t panic
It can be scary to see the value of your stocks drop quickly, but selling when the stock price is low could negatively impact your overall capital and cause you to miss out on future increases in market value. Remember that a bear market is just a phase—stick to your long-term goals and avoid quick decisions.
- Manage losses with “dollar-cost-averaging”
Dollar-cost-averaging is a great way to simplify investing and manage losses during a bear market. With this technique, you set up regular, automated contributions to your portfolio. This helps even out your average purchase price over time, ensuring that you don’t purchase all of one stock while it is at a high point and helping you take advantage of market dips.
- Invest in a diversified portfolio
Bear markets don’t affect all assets in the same way. By having a diversified portfolio of stocks, bonds, and other investments, the goal is that some investments will be better able to weather a bear market and manage your overall losses.
- Look for investing opportunities
A dip in the market can be a great opportunity to purchase stocks and other assets at lower prices. As the market recovers, you will hopefully see higher market gains on these new investments.
- Strategize with a qualified wealth manager
The professionals at Vantage West Wealth Management are skilled at helping you plan for the future by evaluating your goals and risk tolerance.
Working together, we’ll create a road map for prioritizing your financial goals in four steps.
- Gather information
We’ll listen carefully to your goals and concerns. - Analyze and Recommend
We’ll study your case, research, and evaluate alternatives, and share recommendations with you.
- Implement
We’ll provide you with information on products and services to help you pursue your goals.
- Monitor and Review
It’s important to be prepared. We’ll be an active, committed partner in making sure your plan continues to help you pursue your financial goals over time.
With strategic planning, a few deep breaths, and the help of the right professionals, you can be calm and prepared enough to weather a bear market and keep your investments preserved until the market recovers.
Learn more about Vantage West Wealth Management and sign up for a consultation.
Content in this material is for general information only and not intended to provide specific advice or
recommendations for any individual.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
