A bear market is a term for when stocks see more than a twenty percent decline from a recent high. Since World War Two, the average bear market has lasted thirteen months and in December, we just started this market cycle.
A lot of people who choose to invest in a bear market are hoping to time their investments perfectly so that they can sell before the market crashes. But you need to be careful so that you don’t lose your savings.
Check out these bear market investing strategies that allow you to invest in a volatile market with confidence.
1. Try the Parachute Method
The Parachute Method involves purchasing portfolio insurance for your stock investments so that if prices fall, you are protected. If you combine this strategy with a low-risk investment portfolio, then you are insulated against a bear market.
In order to buy portfolio insurance, you will have to buy at least one put option contract per 100 shares of stock that you bought.
In order to ensure you are sufficiently insured, you can calculate how much money you would lose or earn if each of your stocks dropped by half. You want to at least be breaking even. Learn more in this bear market guide for the Parachute Method.
2. Hedge Your Portfolio
Hedging your portfolio can give you some protection in the face of a falling market. If done properly, you can offset all of your potential losses by investing in index options, futures, and shorting stocks.
Be careful if you invest in these types of things, as they move in the opposite direction of the market. If the market starts to do better, you could end up losing a lot.
3. Put Stop Loss Orders in Place
A stop loss order is a trigger you can set to sell your stocks if their price falls past a certain point. It’s a way to protect yourself in the event a stock starts falling and you don’t have time to notice it.
Unfortunately, stop loss orders are not a guarantee for the price you will get for your shares of stock. They will become market orders that are traded at market price. If a stock’s price is falling quickly, you can end up getting less for your stocks than your stop loss sale price.
4. Bear Market Investing Strategies for Experts: Actively Trade
Done properly, actively trading stocks can boost your portfolio return quite a bit. But it is also very easy to lose money.
Actively trading means buying a stock or security and one price and selling it when it hits a slightly higher price, without waiting to see if it goes any further up.
The best strategy for actively trading is to cut your losses quickly if one of your investments begins to fall. If you get in over your head you can end up losing a lot of money.
More Advice for the Business Savvy
Now that you have some bear market investing strategies to work with, you can revisit your stock market portfolio and make better decisions.
For more helpful advice and financial guidance, check out our other posts today.
