Bear Markets – How to Survive a Bear Market
The first terms you might hear when you are learning about the stock market include references to bear and bull markets. Bear markets are those in which the prices of securities are falling, causing pessimistic or negative feelings in traders. The more that prices fall and stocks are sold, the more pessimism can grow, causing a bear market to last for a lengthy period of time. Although there is no exact definition, in most case a market is considered to be bearish if there is a downturn of at least 20% for a period longer than two months.
Although bear markets might seem like times to give up on the stock market for awhile, it’s better to look at this as a time of opportunity. Savvy investors can still make money even in a bleak stock market, as long as they are realistic. The first thing to realize is that you are not going to make the same amount of money in a bear market that you would in a bull market. After you have made money on your investments, it’s easy to forget that the market always goes in cycles and a time of loss will follow a time of gain. This is a normal part of the business cycle. As a result, long term investors may just want to carry on as usual in this time of economic downturn, knowing that prices will eventually rise again at some point.
There are several other options when you find yourself investing in bear markets. You can decide to stay calm and take some of your money out of your portfolio for safekeeping, because it isn’t working to make you more money like it would normally. Another option is to snap up the bargain stocks as their prices fall. Many investors view this as a time of opportunity, because even the top global corporations may see their prices fall.
Spreading your cash among bonds and alternative assets is also a good idea during bear markets or any other time, because the more diverse your portfolio, the better you will be able to weather any financial risk or unforeseen expenses. There are many different strategies to follow, but the main thing to keep in mind is that it’s important to proceed with caution. If you are relatively new to investing, it’s best to leave your asset management in the hands of professionals so that you can figure out how to ride out the bear market with a net profit at the end of it.