No investor gets to ride the wave without hitting a bear market or two. They’re a normal part of market cycles, but it is possible to survive, and even prosper under these conditions. All you need is a generous dose of courage, a little mettle, and a strategy.
Defining a Bear Market and Learning to Survive it
A bear market is a period when securities drop dramatically, bringing fearful investor sentiment along for the ride. They’re a natural element of market flux, and if they didn’t exist, nobody would ever attract respectable returns. Generally, several broad market indices must fall by 20% or more for a minimum of two months to earn the title. The trick to coping lies in buying on the drop and profiting from the rebound. If you act too quickly, though, you might miss your opportunity or watch your glistening new purchases dive. If there was an infallible Bear Market Investment for Dummies guide, the entire world would be wealthy. Unfortunately, surviving requires intuition, careful research, and superb timing. These are all qualities that are earned one hour at a time.
Some strategies for investing during a bear market include:
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How to Diversify During a Bear Market
Diversification is one of the most important qualities of a crash-resistant portfolio. This is an excellent time to pick up stocks at reduced prices in order to diversify your holdings—and that’s one of the lowest-risk ways to survive. There is, of course, no perfect way to tell the winners from the losers, but as long as you diversify, you should be crash-resistant. A balanced portfolio includes:
- 25% dividend-paying blue-chip stocks
- Real estate investments
- Futures
- Commodities and other derivatives
- A balance of high and low risk investments
- Both off-shore and on-shore investments
They say fortune favours the bold, and that’s true to an extent. Courageous strategies for investing during a bear market will produce higher returns, but only if you choose the right investments. Those who have the stomach for high risks and the knowledge to handle these investments would do well to add them to a portfolio that contains a fair share of low-risk investments.