How To Survive in a Bear Market

What do experts do when the markets are heading south?
Most investors know that sometimes markets go up, and other times they go down. And while many people will choose to look for safe houses , others view a bear market as an awesome opportunity. And the savviest investors consider all their alternatives in any market, knowing which strategies can be used to play either side. Not only does a downswing eventually result in many undervalued companies to snap up before they potentially go back up, but there are other strategies that generate profit when prices continue to decrease. You’ll find many of those strategies highlighted here so you can learn ways to invest in a downward moving market. We’ll start with a few time-tested strategies to play a bear market.

1. Dollar cost averaging
2. Stock shorting
3. Downturn-resistant industries

Before you get ahead of yourself, there is an important thing to remember. In order to ride out waves of volatility, you need to be comfortable with your investing strategy and take any fear or emotion out of you investing decisions. Otherwise you’ll be doomed to the age old story of buying when the market is strong and selling when the market is weak. So this is a good opportunity to evaluate your investment philosophy and identify investments that meet your criteria.



Dollar Cost Averaging
If you want to avoid “buy high, sell low,” then this is can be a valuable strategy in a down market. The dollar cost averaging (DCA) strategy includes spending a fixed dollar amount at regular intervals on a particular investment, regardless of the share price. This way, more shares will be purchased when prices are low and fewer shares will be bought when prices are high. So over time, the average cost basis will be lower than if all shares are bought at the same time.

Short Selling and Short ETF’s for Downward Markets
Many investors choose to sell a stock short if they believe the price of a stock is going to decline. The way this works is that an investor is allowed to borrow a stock and then sell it to someone else. Then, if the price of the stock decreases, it can be bought (also called covered) back at the lower price and returned to the lender. Of course, you have to pay interest on the stock for the privilege of borrowing it. And it’s a risky strategy, because if the stock price goes up, the loss has unlimited potential.

Alternatively, short ETFs allow investors to profit from declines in an underlying index without directly selling short any securities. Short ETF’s track the inverse of various indices, so that the value of the shares will increase or decrease in value inversely with the index.

Look For Downturn-Resistant Investments
People simply want to move their investments to recession-proof stocks, rather than adopt a completely different trading strategy. Some people consider size, industry, or financial stability as important factors when they examine how a company is going to do when the market heads south.

Image Source: http://moneyfied.com

Subscribe to Everything Finance by Email