Many of us are aware of the terms ‘bull markets’ and ‘bear markets’ that are associated with investing. A bull market is a market uptick denoting a stable economy, while a bearish market exists in a falling economy with declining stock prices. Buyers dominate the bull market and sellers drive the bear market.
Predicting the next market move is hard and it requires factoring-in many variables. The bear market is especially difficult for a lot of investors. To smoothly ride out the bear market, you can prepare yourself and apply strategies that can help you survive. Here are a few strategies to help you with the process.
Focus on the Long-Term In Bear Markets
The best thing to do during a bear market run is to sit back comfortably and let the drama unfold and settle down on its own. Bear markets are a part of the stock market cycle and selling your investments every time the market dips is not the best approach. Instead, you can focus on your investments from a long period perspective.
Don’t Give in to Fear
Worry and fear are the most obvious emotions you will face during a bear market. Investopedia cites an old saying on Wall Street: “The Dow climbs a wall of worry.” In other words, over time the Dow has continued to rise despite economic woes, terrorism, and countless other calamities. Investors should keep in mind that fear can sometimes lead to rash and irrational decisions.
Diversification is the way out
Investors should ensure that they include different types of asset classes with varying levels of risk, structure, time, etc in their portfolio. As things can be very unpredictable during this period, a diversified portfolio could improve your chances of staying afloat.
Risk Tolerance In Bear Markets
Most often, bear markets can affect us more than we can imagine. So it is important to maintain a broader perspective once you invest your money in the market. But if you cannot handle the pressure involved in a bear market, then getsmarteraboutmoney hints at revisiting your strategy.
Adjusting your risk tolerance, and focusing on low-risk investments are the common approaches to dealing with such setbacks. You can also do this annually with the help of an advisor. This will help you in rebalancing your portfolio and avoiding any major loss.