Bear Market Investing


Avoiding losses during a bear market is simpler than one might imagine. Surprisingly, the key is to do nothing.

If your portfolio is a diversified mix of stocks and bonds set with a long term strategy in mind, then leave it alone and wait until markets rebound before you do any tinkering. In my opinion, long term investing is the best way to realize returns for people who are unfamiliar with financial markets. There are many ways to invest money in the stock market, but all the techniques will work best if you don’t blindly follow the herd mentality. By letting fear instead of reason guide investment decisions, the tax implications can be devastating and investment returns can be meager.

Diversifying amongst a wide variety of stocks, bonds and other items to weather financial storms and reap returns during bull markets can be a prudent decision for the savvy investor, depending on the amount of funds available. I think this strategy is best implemented over a long-term investment horizon, however, some people do try to yield profits from short-term investing.

This type of strategy — jumping in and out of the market — is not for the faint-hearted. Even if you do have the risk tolerance for short-term investing, you must also have a large amount of time to spend researching and analyzing market trends to time your investment decisions correctly and pick appropriate stocks and bonds according to your risk threshold.

To do your own long-term investing, you still need to allocate a significant amount of time towards making your decisions, albeit less than short-term investing. Needless to say, doing your own investing, either short or long-term, can involve spending lots of time following the business sections of major newspapers like The New York Times and The Wall Street Journal. Furthermore, if you’re not already reading these articles on a daily basis, but still want to pick stocks and bonds for your portfolio, you should reconsider whether you are willing to spend this much time for an uncertain pay off.

Here are two options on how to invest your money without spending too much time conducting your own research: pay a management fee for a portfolio manager to invest your money for you, or buy an index fund. It does require some research to pick a money manager with low fees and good investment returns, but it can save you a significant amount of distress if watching your stocks and bonds fluctuate causes you to lose sleep. Purchasing a stock market index tracks that particular market so that if the market goes up, so will your investment, and vice versa. I would recommend the latter strategy for people unfamiliar with financial markets.

With an interest rate hike from the Federal Reserve looming, and the majoring indexes dropping, the financial outlooks are uncertain at the moment. Whatever investment strategy you choose, just remember not to make impulsive decisions based on fear. Instead let reasoned decision making determine your holdings, whether that be a mutual fund, index fund, or individual equities and bonds.