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Investors are right to watch for the signs of a bear market when prices tumble from historic highs. Unfortunately, investing in a bear market leads many people to panic and sell their shares of the stocks or real estate that isn’t doing as well.
However a bear market doesn’t have to mean doom and gloom for your portfolio. In fact, investing in a bear market can actually make your investments stronger, despite the name.
When investing in a bear market, investors should use dollar cost averaging to make regular contributions to their portfolio. Diversify assets by purchasing a combination of stocks and real estate. Focus on the long-term goals for your investment portfolio and stay the course instead of selling.
If you want to learn more about how to invest wisely in a bear market, here is what you need to know.
Investing In A Bear Market
A bear market indicates that there has been a significant drop in investment prices, usually by 20 percent or more. You might encounter a bear market for a particular stock, an entire sector, or the market in general.
And more importantly, a bear market usually means that investors are scared off from buying, leading to a shift in supply and demand.
No matter what type of bear market you’re faced with, these tips will help you to make the most of this opportunity.
1. Dollar Cost Averaging
Dollar cost averaging encourages investors to continue making regular contributions to their portfolio, no matter what is going on in the market.
Sit down and look at your budget to figure out how much you can afford to invest monthly. Whether it’s $100 or $500, set that money aside and put it into your portfolio each month – whether it is a bear market or a bull market.
Some months, you will purchase fewer stocks because the prices will be higher. In other months, you may come out ahead when stock prices are lower and you can purchase more with the same funds.
Overall, this strategy gives you a lower average cost per share, maximizing the investment.
In a bear market, you will be able to buy more shares for the same price.
While you don’t need to watch the market intently and try to time it with the absolute lowest price, you will be able to find great bargains on stocks that you wanted to invest in anyway.
In fact, it isn’t recommended that you try to time the market just right. Investors should simply invest on the same schedule and they will likely see some returns even without being hyper aware of what is going on in the market.
Find a strategy that works for you and stick to it, regardless of what type of market you’re in.
2. Diversify Assets
Of course, the stock market isn’t the only place you should be investing your money during a bear market. If you want to make the most of the downturn, you should be prepared to invest in other types of assets as well – namely, real estate.
Fundrise makes it easy for investors to get in on real estate transactions and you only have to contribute $10 to get started.
Diversifying your portfolio is important, whether you are in a bear market or not. It helps create a sense of balance in your portfolio with some investments pulling their weight and others falling behind.
Diversification minimizes the overall risk and allows you to come out ahead.
Real estate can yield great returns on investment, and it’s an asset that people always need.
Every person needs a place to stay, and real estate investments provide that. However, not everyone can afford the down payment, closing costs, and maintenance requirements to purchase real estate on their own.
This is where REITs through Fundrise come into play.
You can invest in a collection of properties, both commercial and residential.
Someone else will manage them, facilitate their purchase and sale, and keep rental income flowing. Shares also frequently yield dividends based on the rental price of the property or capital gains from selling properties.
This is a great way to get a little extra cash in your pocket to reinvest in either more real estate or the stock market.
Other ways to diversify your portfolio would be to invest in assets like:
3. Focus On The Long-Term
While it may seem like things are doing poorly right now, take a more long-term view of what you can do with your investment portfolio. Eventually, bear markets always turn into bull markets at some point.
Prices will start to rise again and people are more inspired to buy and invest. The only downside is that they would have made wiser and better investments during a bear market.
If you make your decisions to sell based on emotion, you might be disappointed by the end of the bear market. Many investors will sell when prices take a tumble instead of staying the course with their strategy.
That’s why dollar-cost averaging is key. You keep making the same investments, regardless of what the market is doing.
Eventually, the market will turn around and the stocks you bought at a lower price will be worth so much more. Don’t let emotions color your decision to buy or sell. Stick with your strategy and trust that it will be worthwhile.
If you aren’t certain that you can refrain from buying and selling at will, trust your investments to a financial advisor who can help steer you in the right direction.
A Bear Market Is Only Part Of The Cycle
The good news is that a bear market is just another part of a normal and healthy financial cycle. Its counterpart, the bull market, will eventually resurface and your investments will be worth more than they are currently.
This is why keeping the faith and maintaining your investments in a bear market is so crucial.
Keep at your investments and don’t let the tumbling prices sway your decisions.
A bear market may end up being the best thing that ever happened to your portfolio if you can get in on the ground floor with some key companies that will rise when the market fluctuates again!