Bear Markets and investing – 4 things to do to protect your money!

Zubin Relia
December 15, 2022
bear market
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We all worry about our money. It is quite easy to understand why one would be worried about having little or no money. But, we also worry when we do have money. This is especially true if our money is invested in equities and the stock market is in the middle of a bear market. Therefore it is important to follow some basic steps to stay financially fit.

In this article, we will go over 4 steps one can take to not only safeguard their money from a bear market but also grow their money simultaneously.

Don’t panic sell

During market corrections, selling off your investments and timing the market might seem like a good idea. Negative news such as the Covid-19 pandemic, an asset bubble that’s about to burst, financial scams being revealed, etc., can easily influence any investor.

However, past data shows that the best and worst-performing days of the stock market are often very close to each other. This is the key reason why the strategy of timing the market does not work well for a lot of long-term investors. The key thing to remember is that fear leads to panic, especially among novice investors. This panic often makes investor sell their positions at low prices during a bear market.

But historically, markets have always recovered from these bearish trends and instead of selling in a panic, you should just remain calm and stay invested. If you manage to continue investing irrespective of market conditions, you will reap the rewards when the markets recover at a later date.

Don’t panic buy

Panic buying can be described as a state of mind that pushes you to make investments without much deliberation or research, which can become an obstacle to reaching your current investment goals.

After all, when markets are down, it often seems to be a great time to invest at reasonable valuations. In such cases, investors often part their money in Bluechip stocks or purchase Index Funds. However, many investors forget one key aspect of Equity/stock investing in such cases – their own risk appetite. The buying frenzy when markets tank can lead investors to invest in Equities which are not aligned with their actual risk appetite.

So instead of panic buying, you should plan for these investments well before the bear market actually starts. But to do this, you need to know how high or low your personal risk tolerance is. Only then will you be able to accurately decide how much of your existing portfolio needs to be rebalanced to meet your goals

Periodically rebalance your portfolio

Portfolio rebalancing is a strategy that helps in aligning your risk appetite to your investment portfolio so as to provide better risk-adjusted returns on your investments. This strategy involves buying and selling equities and investments periodically so that the weight of each asset class is maintained as per your targeted allocation.

Some key questions that one needs to ask themselves when assessing their current investments and deciding if their portfolio needs rebalancing :

  • What am I invested in – Mutual Funds, Stocks, Bonds, Gold, etc?
  • What is the value of my investments?
  • What are my financial goals?
  • What do I focus on when building my investment portfolio – consistent returns, growth of capital, etc?

If done right, rebalancing your portfolio will not only help you stay on course to reach your financial goals but also help you manage overall portfolio risk and safeguard your money when markets are highly volatile. That said, it might not be a good idea to rebalance your portfolio in the middle of a bear market. You should instead consider letting markets settle down a bit before rebalancing your investment portfolio.

Choose your equities carefully

An ongoing bear market provides you with the perfect opportunity to increase your Equity allocation at a very reasonable cost and allows you to switch to a more aggressively approached asset allocation portfolio from a comparatively conservative allocation. This is because Equity investments, especially when purchased at low valuations, have an unmatched ability to boost your investment returns, which can help you meet long-term goals such as retirement.

So, if you plan to make Equity investments during a market correction, make sure you do adequate research on the equities you look to invest in. But, if you do not know how to correctly value stocks or don’t have the time to conduct a deep dive into possible investment options, it might be a better idea to invest in professionally managed diversified Equity Mutual Funds as compared to investing in individual stocks on your own.

Bottom Line

An ongoing bear market offers investors a unique opportunity to grow their wealth. But to take advantage of this crash, you must have a contingency plan in place before the crash actually happens. The 4 strategies discussed above are designed to help you not only weather a market crash better but also make sure that you can grow your wealth significantly when markets recover at a later date.

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