3 Things To Do in a Bear Market

A bear market creates a lot of anxiety and confusion among investors. Falling prices, portfolios losing value, and clouds on the horizon justify real concerns.

Bear markets look scary, but you can find ways to survive – and even thrive – during a market downturn. These are three things to do in a bear market to protect your investment portfolio and position yourself for financial success in the future.

Stay Rational Instead of Making Emotional Decisions

Stock prices fall because supply exceeds demand – in short, people want out. It’s easy to understand why people panic and sell their shares. If you bought Tesla shares six months ago, you spent at least $1,000 per share. Shareholders have lost more than 33% of their value since then.

If you own shares, you might be wondering: What if the prices keep falling?

You’ve already lost more than $300 per share. What if you lose $500? In a panicked state of mind, it looks reasonable to sell those shares now so you don’t lose more of your investment.

In some cases, selling shares and avoiding further losses probably makes rational sense. When the fundamentals change, it is smart to modify your stance.

Whether you choose to buy, hold, or sell shares, you need to base your decision on realistic research and rational analysis.

Don’t let fear guide you.

Do the hard work to identify growth opportunities. While some people panic and sell shares of a terrific company because prices have fallen, you have a chance to purchase stocks whose fundamentals remain strong at a discount. Over the long-term, snapping up these bargains can be highly lucrative.

Stick With Safe Haven Stocks and Assets

Safe haven stocks tend to retain their values during bear markets because the companies provide essential products and services. For example, when energy prices start to rise you can probably rely on Exxon (XOM) and Phillips 66 (PSX) to be resilient.

Other safe haven stocks include:

• Realty Income Corporation (O)
• Costco Wholesale Corporation (COST)
• The Coca-Cola Company (KO)
• Verizon Communications Inc. (VZ)
• The Procter & Gamble Company (PG)
• Johnson & Johnson (JNJ)
• Union Pacific Corporation (UNP)
• Berkshire Hathaway Inc. (BRK-B)
• Microsoft Corporation (MSFT)

You can also invest in safe haven assets that will likely hold or gain value. Some safe haven assets to consider include:

• Precious metals
• Currency
• Bonds
• Real estate

Investing in safe haven stocks and assets will lower your portfolio’s risk. In return, you can expect to generate lower returns.

The values of these assets might increase, but they probably will not grow in a way that adds significantly to your portfolio. Think of them as hedges against risk rather than big moneymakers.

Of course, nothing is guaranteed when investing. A safe haven stock’s value could plummet suddenly. It’s also possible that a company could perform so well during a bear market that its price increases significantly.

If you want to ensure that you get some return for your investment – instead of simply “treading water” – put some of your money into dividend stocks that will pay you on a monthly, quarterly, or annual basis. You can take the dividends as cash or for long-term, exponential growth, reinvest your dividends so you can own more shares in the company.

Focus on Dollar Cost Averaging

Dollar cost averaging means you commit to investing a specific amount of money regularly. You effectively disregard price and choose instead to allocate a fixed amount of capital at a regular schedule to an investment, such as the S&P 500. 

Dollar cost averaging spreads out your investments over time so you can benefit from market fluctuations. For example, you might dedicate $600 per month to buying shares in an index fund. During the first month, the fund’s shares might cost $100 each, meaning you would buy six shares. At the same time next year, the price might have gone up to $200, so you would only get three shares.

Don’t think of this as getting a great deal one month and a mediocre deal the other month. Instead, recognize that you have avoided the market’s highs and lows by spreading out your investments to buy shares at an average price.

Dollar cost averaging takes a hands-off approach to investing. It tends to work best when you “set it and forget it.” Have the money come directly out of your bank account so you never even think about spending it. As far as you’re concerned, you never had the money. It went directly into an index fund, stock, or other asset.

Things To Do In A Bear Market: Conclusion

Investors respond to bear markets in several ways. If you have a lot of discretionary income, you can take advantage of low prices by investing heavily. As the market recovers, you can watch your portfolio’s value grow.

If you don’t have enough spare cash to buy a lot of shares, you might need to focus on surviving the bear market. Safe havens and dollar cost averaging give you a way to protect your investments and potentially benefit from future growth.

Most importantly, you need to approach all of your investment decisions from a rational perspective. Take enough time to do plenty of research before deciding where to place your money. All of your choices should come from reviewing financial statements, 10-Ks, 10-Qs, and studying corporate leadership. You won’t make the profitable choice every time, but you will almost certainly do better than someone who reacts emotionally.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.