No one likes a market downturn, but sometimes it’s very much inevitable. It is also natural for markets and economies to go through the cycle of boom and bust. It is very likely that for every bull market enjoyed, there’s very much likely to be a bearish period lurking somewhere in the future.
- WHAT A BEAR MARKET IS?
A bear market is defined as a 20% drop from recent highs. The term bear market can be used to refer to any stock index or to an individual stock that has fallen 20% or lower from recent highs. Bear markets occur when there is a greater than 20% peak to trough drop in the sand 500.
Although the 20% threshold is arbitrary, a bull market is one in which stocks have gone up while a bear market is one in which stocks have fallen. When stocks begin to fall, it is hard to know if it has reached its limit.
If you wait too long and stocks rise again you’ve missed an opportunity to buy on a dip and won’t profit from the rebound in prices. But if you are too quick to pull the knot, you may end up seeing your new stock purchase continue to decline further making it tricky to identify the best timing in this case and manage trading actively. Here are some strategies to protect your investment in a bearish market.
- DEFENSIVE STRATEGY.
One way to protect and maintain your position in the market regardless of the market conditions is to be on the defensive. Here, you are to invest in large corporations having a long operational history and a strong balance sheet. This is because stable, large-cap companies are usually less affected by a downturn in the market therefore making their share prices definitely less vulnerable.
- INVESTING INCOME.
Purchasing assets known for generating income is investing income and the most common assets targeted by income investors are real estate, high yield dividend stocks or mutual funds.
This is because of the fact that during down markets, real estate is a popular buy because it’s generally easier to purchase a piece of property at a discount to market prices when money is pretty much hard to see or come by.
So by focusing on investments that generate income, you have the ability not only to protect your investment to avoid significant declines but also earn consistent income that will help to offset any declines.
- AVERAGING DOLLAR-COST.
One way or strategy investors employ to protect against the heavy market volatility that occurs during bear markets, while increasing potential profitability as the bulls start to take control is averaging Dollar-cost.
To be smart in practicing averaging Dollar-cost, you need to understand one fact that you don’t make large investments all at once. Instead, the investors spread the investments over a predetermined schedule.
For example, if you have a total of $10,000 in your possession to invest, instead of buying $10,000 worth of shares, you should spread the purchase out by making 10 $1000 investments over a period of time.
Scary times for any investor is obviously the bear markets. If the market falls, it is possible for you to protect your investment and meet your financial goals by diversifying and making due use of strategies designed to practically generate profits during market declines.
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