What do you do when a bear attacks?
For many of us, we don’t live near any bears, so we’re likely to be unprepared. When it comes to a bear market, the situation is not too different. No one can predict a bear market, and for some it’s not even easy to recognise when a bear market begins and when it ends.
The general agreement is that bear markets are characterized by a consistent drop in the market, accompanied by negative investor sentiment. The more we work with markets and investing, the more frequently we are reminded that emotions are instrumental in driving the markets. Negative sentiment is, therefore, quite an important element of being in a bear market.
As we look at ways to bolster our investments in bear market conditions, here are a few strategies to employ (taken from Investopedia.com), but before you try any of them, make sure we’ve had a chat to understand your unique situation. If a bear rummages through a campsite, it’s possible for your tent to remain unscathed. Not everyone struggles in a bear market!
Keep calm… and move slowly
Just like the wilderness encounter, experts advise you to remain calm and make no sudden movements in the presence of a bear. The same is true of the stock markets. Sudden movements and panic decisions can cost you an arm or a leg…
Diversification is almost like looking for a more solid footing and spreading out a little. This not only gives you more stability but it ‘keeps your head down’ and allows you to physically take up a little more space without placing yourself in a more precarious position. Being caught off guard can also mean that we’re caught off-balance. Diversification of stock allocations helps us ensure balance and encourages stability in our portfolio.
Only invest what you can afford to lose
Bear markets are often accompanied by other market downturns, with people in all sectors needing to tighten their belts and sharpen their pencils. There is less expendable income, making it even more important to focus on covering our bases first before extending our risk. It’s wise to have savings and investments, but we also need to put food on the table and take care of our everyday needs. Even small adjustments in the market (in the wrong direction) can be detrimental to your portfolio, and it will need time to recover.
The markets always present opportunities, even in a bear market, but it takes a comprehensive strategy and a team of astute investors to survive. Don’t go it alone, and don’t dabble without weighing up the risks.