Investing during a bear market can be quite intimidating and appear challenging. However, it doesn’t have to be if you ensure you are prepared ahead of time. In a rough economy or during a financial crisis, the markets are going down, the media writes panic headlines, everyone is telling you to sell, and you’re sitting there not sure what direction to go.
It’s all too common and for most investors (new or experienced investors), losing money is all they think about. Here is how to survive one, and staying the course with your investments.
1. Always diversify your investments
If a recession hits, diversification won’t save you from losses. And even in a standard bear market, you may lose some money too. But, diversification of your investments can help protect catastrophic losses and keep your portfolio more balanced.
Spread your investments among stocks (different sectors or industries), bonds, REITs, maybe some actual real estate, cash, even commodities like gold or silver. Find the balance that is right for you and keep your portfolio well-mixed.
2. Keep investing as if nothing is happening
You might think this is crazy, but if you are investing long-term, Dollar Cost Averaging can be your friend. The goal here is to keep investing the same way and amounts you’ve been, do not change anything.
This will help minimize risk and balance your investments in the future. I’ve bought funds when they were downtrending and I’ve bought funds when they are at the highest.
3. But also, keep a bit more cash handy
While dollar-cost averaging is a great play, I’d also recommend keeping a bit more cash on the sidelines. Ensure you are saving money for emergencies, but also (if you can), keep some on the side for purchasing power when the stock market declines.
Don’t try to time the bottom of the market, you’ll fail at it 99% of the time. But, when things are on decline for awhile, you may want to purchase something extra or more of a particular fund when it’s cheaper.
4. Ignore the doom and gloom media
There is nothing wrong reading financial publications from time to time, but steer clear of most during bear markets. Everything is negative, the world is ending, the economy and financial markets are in turmoil, and stock up on canned goods and bunker down! You get the point.
But it can mess with your head and cause you to panic sell or make rash decisions about your investments. Do yourself a favor, limit your consumption or at least read with a grain of salt so you won’t make investing decisions based on articles.
5. Log into your investment accounts less
A good rule of thumb is not logging into your investment accounts very often anyway. But surviving a bear market means resisting the urge to login in everyday or multiple times a day. If you are diversified and consistently investing by automating your money, you should not be logging in often.
Logging in too much can trigger you to tinker, sell, buy, or just make hasty decisions because you see numbers in the red. Do your mental health a favor, remove the apps from your phone and avoid the temptation to login on your computer. It’s okay to check in once in awhile, but multiple times a week may drive you nuts.
6. Have another stream of income
Mostly likely a bear market will not lead to a major recession, but it can happen. Those can be a bit scary, because it affects jobs and money making. I’ve been fortunate to not experience a recession yet, but I’m sure I will in my lifetime.
Besides having an emergency fund, another form of relief is to have another stream of income (no, not just your dividends or capital gains from the stock market investments). Multiple streams of income are important and many of these are called side hustles, but can help you do a few things.