Any investor would like to see their investments grow and no one wants to see them dipping. This is what makes the bear market and here the securities will fall at least 20 percent in value and widespread.
For a savvy investor, the bearish market is nothing to be afraid of and experts say it could be a good reason to earn profits if the correct strategy is applied. Here in this article, we will discuss the investing strategies which may help to make gains.
- Diversification
- Investing in dividend stocks
- Patience is the key
- Look for bargains
- Invest in growth stocks
- Short strategies
- Gold investment
- Defensive industries
- Hedge with Dollar cost average
- Lipstick effect theory
1. Diversification
Among all the winning strategies the most successful tool is diversification. Diversifying your portfolio is a good technique where you are not investing all your money into one company. Whether it is a bearish market or a bullish market this technique will work effectively. There is a saying, that “Don’t put all your eggs in one basket”. Diversification is a technique that will avoid investing all money in one stock.
There are high chances that if one investment rises other may remain stable and if one investment falls other investments may rise. This way you are ensuring that your money is safe and you can avoid losses by investing through diversification. Diversifying may be into stocks, bonds, short-term investments and international stocks.
2. Investing in Dividend stocks
According to data from Ned Davis Research conducted from 1972 to 2012, it is clear that investing in dividend stocks average an annual return of 9.5 percent. This is another reason why investing in dividend stocks is much popular among investors. When compared to non-dividend stocks paying investments this is more profitable. The stocks that issue dividends are more profitable because they yield higher returns than non dividend stocks.
3. Patience is the key
When you see your stocks growing it will be very tempting to sell the stocks and realize the gain. This short-term gain will make you lose the long-term gains. A great investment strategy is to buy and hold the investments for a long period of time.
For a long term investor buying and holding investments even during an economic crisis will yield good returns when the economy starts plummeting. Bearish market will not last forever so have patience and make investments for the long term.
Click here for Understanding the Investment Risk Pyramid
4. Look for bargains
Bearish markets will make even the high yielding stocks take a dip. A smart investor will see the bear market not as a set back but they see it as a right chance to make the investment. Where there is a downturn there is always a better chance of getting a good bargain.
Successful investors always make the right investments decisions during the bear market. The Bear market creates fear and the down market creates a set back for the investors not to make the investments.
5. Invest in growth stocks
During the downturn, growth stocks perform better than value stocks and this is the reason that there is a high ratio of investments in growth stocks during the bear market. According to a report by Bank of America/Merrill Lynch, the performance of growth and value stocks was performed over 90 years from 1926 to 2015 in this growth stocks proved to be better investments during the economic crisis.
6. Short strategies
During the bear market the prices of stocks will fall and this is a great opportunity for making the investments. This is a short term strategy that should be utilized to make gains in the long run. The short term strategies are good options for all those who are willing to take the risk and make investments.
Click here for Stock Market Crash – What to do next?
7. Gold Investment
The price of gold will tend to increase and decrease with little variation. Gold is considered a great way to make an investment. It is a great hedge during the economic crisis and the investors who want to make investments in gold there are a few ways.
- Investments in Gold-backed ETF
- Purchase bullion
- Investments in Gold mining stocks
8. Defensive Industries
Investments in defensive industries are safe investments. These are recession proof investments because they are necessities for living. These industries are shampoos, toothpaste and other grocery companies. By making investments in these industries you can secure your portfolio.
You can also invest in index funds or exchange traded stocks. The products of defensive industries are used even in an economic crisis and this is the reason why these are safe investments.
9. Hedge with Dollar cost averaging
When you are hedging using the dollar cost averaging method this will effectively average out buying in price. This method will help you to avoid buying too high and you can take advantage of dropping markets. This method will be successful when you are investing an equal amount of money in your stocks at regular intervals.
10. Lipstick effect theory
This theory states that during the economic downturn people will not buy luxury items and the sales for luxury items will not increase. Making investments in these industries will not yield high returns. Customers will not be able to afford to buy luxury items, they will be interested in making purchases of small items that are less expensive.
Take away
During the bear market the prices will continue to fall and this is the right time to make the investments. Financial experts and successful investors always make the right investment decisions during a bear market. They say that it is the ideal time for investors to make the investments. Down markets will create fear and this will make the stocks sell-off but don’t panic, make investments during bear markets.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
