Updated: Dec 16, 2022
Bear markets are generally infused with characteristic uncertainty and paranoia from big corrections and market dives. We are amidst one right now, caused by the conglomerate effect of the Ukraine-Russia war, rising inflation, and the post-pandemic rebalance of the economy among others.
S&P 500 and Nasdaq have fallen 663 and 3861 points respectively from the start of 2022 and are speculated to drop further as the bearish end seems elusive. The question now is how can one navigate the current market volatility while minimizing losses, managing risk, and maybe even turn the tide to their advantage.
The idea is to survive the bear market and emerge into the sweet bullish times by making rational and educated decisions grounded in long-term investments and time horizons.
1. Dollar-cost averaging
Distributing portions of your investment over longer time scales instead of one-time bulk investments can temper sudden market-dependent losses and volatility. The effect of this kind of periodical batch investing is most pronounced with longer time horizons as the gains incurred in the way offset the losses.
2. Buy in the dip
The bear market has affected all industries across domains although in different measures. Stocks of numerous big tech companies are available at discounted prices. It is an opportune time to dip your feet in value investing and buy quality stocks that were absurdly expensive erstwhile.
When the downtrend subsides, as it always does, these little gems will outshine the losses.
3. Rest and Observe
Historically, bear markets last for an average of 289 days. While some endure for as long as 622 days, others die out within a few months making way for stock rallies. If your risk appetite is stunted, it wouldn't be an outrageous notion to not partake in any investing and just sail still.
There’s going to be enough time to get back in the market afterward. Your short investments will definitely take the hit, but longer ones shall survive, without much intervention.
4. Readjust your portfolio
Rebalancing the asset weights in your portfolio towards lesser risk can alleviate future losses. It is a worthwhile exercise to recognize stocks that are faring better than the rest and make an educated move.
5. Short selling
Shorting uses the dip in the market to build capital. It involves selling the plunging security during the dip and buying it later at even lower prices.
Short selling demands risk that depends on the bear market duration before the market cycle turns bullish. Waiting for the bottom of the crash can be foolish and risky in such cases.
What not to do?
Don't be influenced by market emotions and give in to impulsivity. Sudden sell-offs with no forethought will dissolve your investments sooner.
Bear markets are only normal after a long bullish trend and vice versa.
When you plan long-term, say for 30 -50 years, macroeconomics trends such as wars, pandemics, and market bubbles tend to even off.