Investing in a Bear Market

Nov 17, 2023 2:51:19 PM

When stock prices are on the decline, falling 20% or more over a sustained period of time, this is known as a bear market. A bear market is not unusual. Indeed, fluctuations are a natural feature of the stock market, and there have been many market declines over the years.

If you already have money invested in the market or if you’re interested in investing for the first time, then read on for a few do’s and don’ts for investing in a bear market.

DON’T act out of fear

When the market is in decline, it’s completely understandable for investors to be concerned about their financial security. However, it’s important to make all investing decisions with caution and consideration. In other words—don’t act out of fear. A classic adage amongst investment experts is that the best move during a bear market is to do exactly what you would do when encountering an actual bear: play dead. In other words, you should stay calm and avoid any sudden moves.

DO check bond rates

The falling price of stocks is sometimes accompanied by a rise in interest rates, which usually means better-than-average returns on short-term, fixed-income assets such as bonds and CDs. Before you decide to completely forgo investing during a bear market, check bond and CD (certificate of deposit) rates. These investment vehicles are low-risk and offer a guaranteed rate of return; so if you have savings available, this could be a chance to earn above-average interest on your cash.

DON’T overhaul your long-term portfolio

While it’s smart to consider how to adjust your investing strategy during a bear market, it’s normally not a good idea to overhaul your long-term investment plan. No matter what’s happening in the market, your personal investing timeline and financial goals are unchanged. If your portfolio is already diversified and designed around your unique financial needs—including intended age of retirement—you should be able to ride out any market declines and stay on track.

DO maintain a diverse portfolio

Holding a diverse portfolio is the touchstone of healthy investing strategy. With investments spread across various sectors, asset classes and risk levels, your finances will be best positioned to stay healthy in a bear market. Therefore, be wary of any investing decisions that narrow your portfolio diversity—for example, pulling all of your money out of the stock market and investing your entire nest egg in foreign currency would not be a bear market investing strategy recommended by the experts.

DON’T Ignore the Opportunities

While it’s important to not act too fast, at the same time, a bear market isn’t a signal to sit back and do nothing. In fact, certain sectors tend to perform better during a recession—and investors may be able to maximize their returns by investing in these areas. Sectors that commonly outperform in a bear market include consumer staples, healthcare and utilities—but as always, aim for diversification and think about working with a professional when investing in the stock market.

DO Consider Asking an Expert

If you’re nearing retirement age or concerned about market conditions, consider getting advice directly from an investment professional. A fiduciary, who is legally obligated to look after your best interests, will be best positioned to offer advice on how to smartly invest during times of market decline. At the same time, continue to enhance your own financial literacy with research from reputable sources, so that you can better understand what moves to make—or not—in a bear market.

Tags: Investing