4 Tips on How to Invest During a Bearish Market

The term “spirit animals” is commonly associated with spirituality and tradition. In many cultures, a person’s journey or characteristics may be likened to that of a particular animal, prompting the said individual to adopt the said beast as their spirit animal. But it’s not just people who find themselves sharing similar values to animals.

There are also financial events and activities that many people closely associate with real and imaginary animals. Experts sometimes use spirit animals to make a close approximation of the ways that human emotion can drive the movements of the economy. The market can be typically described in this sense as either a bull or a bear market. For the purpose of this discussion, we’ll be focusing on the latter. But what exactly is a bear market, and how can one make the most of this particular situation? 

What Is a Bearish Market?

Bear markets refer to a prolonged period of price declines, during which even average stocks fall about 20% after a recent high. It’s a challenge to sell at a profit during this slump, so it’s no wonder that it’s often accompanied by negative investor sentiment and confidence. There are a few ideas why a bear market is called such. One is the association between hibernating bears and the decline in prices, while another is more closely tied to how bears attack their prey, which is by swiping their paws downward. 

While a bearish market can sound like bad news for current and would-be investors, that’s not entirely the case. As always, a seemingly unfortunate situation can offer opportunities to intrepid individuals. Investors who want to maximize their chances of success during this time should keep the following in mind:

Take Advantage of Low Market Prices

Bear markets tend to rattle investors, who will then attempt to cut their losses by selling their assets at low prices. However, if you have funds set aside for investment, this is an opportune time to buy stocks or other assets like cryptocurrencies. For instance, if you plan on investing in Monero (XMR), you can add more digital coins to your XMR wallet since the price for each coin in a bear market is much more affordable compared to other times.

The same can be said for other assets like stocks. However, where you put your money is a decision that you should seriously think about. What is your investment horizon and how much are you aiming to get out of your investment? Knowing the answer to these questions will help you decide which the best channel for growing your money is. 

Use Dollar-Cost Averaging

When prices are low, it can be extremely tempting to dump your money on assets that you’ve long had your eye on, but it’s best to consider things carefully before doing so. Don’t let the excitement get to you, and choose to approach your investment decisions practically. You can do this by using dollar-cost averaging. This investing strategy requires you to allot the same amount of money to a particular investment for a set amount of time, regardless of how much the price of the asset is.

Let’s say you’re interested in a particular company and its stock prices plummeted, giving you the chance to buy more stocks for less. Instead of making an impulsive decision like this, you can choose to dedicate USD 50 to purchasing stocks every week. Commit to it and practice it consistently, no matter if the number of stocks you can buy with the same amount of money increases or decreases. Using such a strategy will enable you to take advantage of market dips without losing your liquidity in such an uncertain time. 

Account for Risk and Your Investment Horizon

Bear markets tend to last for quite a while–a year, give or take. Given this knowledge and your current progress in achieving your financial goals, where should you invest your funds? Ideally, your investment option should be able to bounce back after a year, but it shouldn’t take such a long time before your investment reaches your target numbers. If you’re close to retirement and are depending on your portfolio to support you after you’ve celebrated this milestone, perhaps it’s not a good idea to risk your retirement funds when you’re not quite sure when the market will recover. But if time is in your favour and you still have a lot of years to earn back your capital in case your investment doesn’t pay off, then you might still be able to afford risks that would seem imprudent for older adults. 

Continue to Diversify Your Assets

Be it a bear or a bull market, diversifying your assets will continue to work in your favor. If you’re still young, it can be a smart idea for you to put your capital on assets that are projected to grow in value in a few years’ time. Look into dividend-paying stocks, the profit from which can help you overcome these challenging times and can go toward increasing your capital in other types of investments. Putting your money on bonds can also be a good idea, as this type of asset tends to move in the opposite direction as the stock market. Having these additional assets in your portfolio can help you have a lifeline in case the market’s movement goes against your expectations.

Keep these tips in mind when making investments during this bearish period in the market. By making smart decisions during these uncertain but opportunity-filled times, you’ll have a better chance of growing your money and maximizing the payoff of your current investment.