How to Invest in a Bear Market

Bear markets can present an incredible investment opportunity and pay dividends. Avoid the fear - keep investing with NJM Wealth Preservation Strategies.

A bear market is a sustained dip in asset prices, generally defined as a 20% fall for a market index like the S&P 500 for example. 

If you’ve been investing throughout your life, or just getting started, it’s important to note that these market downturns are inevitable. The good news being that they typically don’t last long compared to a bull market where assets are increasing in value. 

The key point above is that history shows us that bull market gains are almost always going to outweigh bear market losses..

That being said, it’s not quite as simple as “buy low, sell high”. Read on to learn more about how to turn these financial downturns into positive portfolio windfalls.

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Bear Market Basics

While a bear market is typically defined as a 20% drop for broad market indexes, the term can be applied to an individual stock as well. On top of that, the 20% drop mark is not a hard and fast rule and the time in which this dip takes place can be quickly, or over a period of time.

Why do bear markets occur? They can be a reflection of a lack of confidence in the market, a general negative outlook on the economy or simply a reaction to a poorly performing business vertical or individual company. 

When these downturns occur, the natural question is - how long will it last? On average, bear markets last 289 days. The good news? Bull markets run for 2.7 years on average, and the gains of bull markets are often considerably more than the losses of a bear market.

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Leveraging a Bear Market

  1. Diversify: Diversification applies in almost every financial asset context. In bear markets, the downturn often doesn’t apply to every business vertical, so diversification can help part of your portfolio stay afloat allowing you to invest during the market dip.
  2. Engage in Healthy Risk: We often feel comfortable risking money when times are good, but the best time to take chances can be when market dips present investment opportunities. Consider those who bought during the Great Recession, who then went on to reap the benefits of one of the greatest market rises in history.
  3. Cash is King: While not an asset that’s going to offer high returns, it’s a consistent one. When everything else is skyrocketing or diving to new depths, cash offers a cushion that can be utilized simply as an emergency resource or as an investment tool. A good rule of thumb is 12 months of living expenses with additional savings as an investment tool.
  4. Make a Play: As we’ve learned, bear markets compared to bull markets are often much shorter. What this means is that when a bear market presents itself, you should engage with the opportunity as quickly as possible. If you’re able to take advantage of a bear market, you may be looking at returns of 43.4%. 
  5. Use a Financial Professional: A financial professional like a Wealth Preservation Specialist is going to be able to advise which indexes, individual stocks and other investment vehicles to take advantage of during a bear market. Whether you have experience with investing or not, partnering with a professional should always be a consideration. 

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Final Thoughts

Bear markets can be a scary thing, but if taken advantage of, they can be an incredible opportunity. With a bear market currently in full effect, it’s a perfect time to work with a Wealth Preservation Specialist to regroup and consider how to maximize your gains. 

At NJM Wealth Preservation Strategies, we provide services from Optimizing Investment Strategy to Retirement Planning. Our team is passionate and we pride ourselves in our clients satisfaction. Schedule a call with us today and let us develop a strategy to make your money work for you during the current bear market.

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