Savvy Strategies to Survive in a Bear Market

Keep Your Emotions Under Control

On Wall Street, people often say, "The Dow climbs a wall of worry." In other words, the Dow has gone up over time even though there have been economic problems, terrorist attacks, and many other bad things. When investing, people should always try not to let their feelings get in the way. What seems like the end of the world one day might be just a small blip on the radar screen a few years later. Fear is an emotion that can make it hard to think clearly about something. Don't worry, and keep going!

You Can Save Money By Using Dollar Cost Averaging

The most important thing to remember during a slowdown is that bad years on the stock market are average. The business cycle includes this. If you plan to invest for at least ten years, you can use dollar-cost averaging (DCA). If you buy shares, no matter what the price is, you end up getting them for less when the market is down. Your costs will "average down" over time, making it cheaper overall to buy shares.

Act Dead

In a bear market, the bears are in control, and the bulls have no chance. The best thing to do in a bear market, according to an old saying, is to act like you're dead. This is the same advice you'd get if you were in the woods and saw a real grizzly bear. Fighting back would be very dangerous. Bears won't eat you if you stay calm and don't move around quickly. In finance, playing dead means putting more of your money into money market securities like CDs (Certificates Of Deposit), United States Treasury bills, and other instruments with short maturities and high liquidity.

Diversify

Diversification means putting a certain amount of your portfolio in bonds, cash, stocks, and other assets. How you split up your portfolio depends on how you feel about risk, how much time you have, your goals, etc. Every investor has a different starting point. A sound asset allocation plan will help you avoid the bad things that could happen if you put all your eggs in one basket.

Only Put In Money You Can Risk Losing

Investing is essential, but you still have to eat and live somewhere. Putting money, you'll need soon, like money for rent or groceries, in stocks is not a good idea. Generally, investors shouldn't buy stocks unless they plan to keep their money for at least five years and preferably longer. They shouldn't also invest money they can't afford to lose. Bear markets and minor corrections can do much damage, so keep that in mind.

Try To Find Good Deals

Bear markets can offer a lot of great chances to investors. You need to know what you're looking for. During a bear market, stocks are sold for less than they are worth because they are hurt and beaten up. Value investors like Warren Buffett tend to think that bear markets are good times to buy because the prices of both good and bad companies go down. Because of this, the prices of good companies look excellent. When the market isn't doing so well, Buffett often buys more of his favorite stocks. He does this because he knows that the market tends to be too hard on good companies.

Buy Share in Defensive Companies

When times are bad, non-cyclical or "defensive" stocks tend to do better than the market. These stocks always pay dividends and have steady earnings, no matter what happens to the market. Companies that make shaving cream, toothpaste, and shampoo are cases of defensive businesses when people will still use these products even when times are hard.

You, as an investor, would be well to learn the distinction between bull and bear markets. A bull market is generally understood to be an upward trend that has been going on for some time. Market optimism and investor demand for stock purchases during a bull market are both high, reflecting the widespread belief that stock prices will continue to rise. However, the situation is completely reversed during a bad market.