The stock market is among the oldest financial markets that exist today and channelising the world economy. Businesses, companies, institutions, conglomerates, and government organisations, all of them draw money from the public for funding their projects and aspirations. They issue IPOs and other methods for fetching the money. Even the bullish market is an appropriate time for reaping benefits. Moreover, it is a phase where people deposit and draw higher return at the same time. The market is on a roll towards the horizon. On the contrary, the bear market eats on all the profits earned by investors. Unlike a bull, which is a symbol of strength and awakening energy, the bear is sluggish and dull.
The bear market is a phase of the negative outcome of investment when the stock market falls more than 20 per cent. It is a period that continues for a prolonged time. Experts generally advise to either stay away from the market or hedge during the same.
Protection from the bearish market needs application of strategies. If someone gets an idea of the market going bear, then it can turn advantageous for them.
Ways to deal with a Bear Market
Before structuring a plan for dealing with the bearish nature of the stock market, investors and traders should know that it is an opportunity and not a scarecrow kind of a replica. When the market is down, even an individual with a lesser income or budget can think of investing. Most stocks are down. Besides, hedging is the best alternative for accumulating interests.
For sustaining the time of downward momentum, traders can apply the cash-out approach by selling all stocks at once. However, it may cause some losses but would avert potentially heavy losses.
Notably, such a haphazard way of bailing out should only be adopted if you are in dire need of finances and cannot afford to lose out on money. Else, if there is a protection of the delivery of stocks, one can wait for a while. Seeing the market through and reacting after it shows some improvement is wise.
Additionally, it should not instil fear in the minds of traders.
Apply put options:-
When stock markets are low, going defensive is akin to playing smart. It is a type of options trade where the user does not have the obligation but the right over assets. Hence, investors cannot sell them in the market before the expiry date of the contract or on the pre-determined price in the future.
Diversify holdings:-
It is the best time for the diversification of assets. You can pick different stocks, precisely the blue-chip ones at lower costs and wait for them to boost for a period. Also, owing the mix of different assets is a guarding light because not all stocks from every stream witness a heavy fall irrespective of the bear market.
During the bear markets, all stocks in an index plunge but not in equal amounts. Hence, a well-planned and diversified portfolio is a shrewd investment.
If you can predict the winning and losing stocks in advance, then investments during the phase become easy and profitable. Economic recessions are the biggest reasons for bear markets and not just coincidences.
It is advisable to get the stocks that offer steadier returns during the times. Adding the following portfolios can support investors:-
Buy bonds:-
It is a lucrative investment when the stock market is down. The price of bonds moves in the opposite direction of stocks. Hence, when the market is bearish, then it is advisable to invest in them for better returns. It acts as an essential component for diversified portfolio holders. Additionally, short-term and high-quality bonds can ease your worry regarding the bear market besides earning you a great amount.
Dividend stocks:-
Such stocks are the best resort when the market is in the free-fall mode and not showing signs of rising. When prices of stock get stuck at a place throwing the resistance to move anywhere, then dividends make for a better return. Hence, companies that pay bigger dividends are always on the cards of investors during the bear markets.
Take a long Term Long
The stock market tends to return to the normal after it goes bearish. Hence, if you have the capacity of holding or buying your stocks for a longer time, it is better. However, these periods are tough to endure and tough said than done, but showing a little patience can help you get over the difficult time.
Also, if you have a retirement plan on your radar, then the phase of bear markets would get eclipsed easily. Additionally, history has it that whoever invested during these shallow and hollow times made remarkable profits later on. Moreover, short-term goals are susceptible to risks and cause losses.
Sometimes, there is temptation and compulsion to exit from the market during such time, do it only when absolutely necessary. If you are into trouble handling your investments, then seek better brokers like ROinvesting, T1Markets, 2invest. They can help you deliver stocks that are below the congenital value.
These reputed brokers can ease the pressure caused by bearish markets through added features like charting and tools.
Try dollar-cost averaging
If the price of stock takes a free-fall, then it is also a chance for investors to average or hedge during the period. For example, if the cost of a stock is USD 150 and it loses USD 50 during the bearish mode of the market, then purchasing some of the shares at that slashed price and holding for a while can surge the profits. Read More.......