5 Tips for Investing In a Bear Market

The volatility that comes with a bear market can dissuade many from entering the market, or from making further investments if they already have assets in the mix. It’s understandable why a bumpy market could make for uneasy investors, even if there are significant advantages to investing in a bear market.

There are opportunities for existing and new investors to take advantage of what is otherwise a down market, however. Knowing when and how to make the most of your investments in a bear market depends largely on knowing where to look for opportunities, and how to best weather market volatility in your current portfolio.

1. Evaluate Your Appetite for Risk

Your goals should guide your investment strategy, whether the market is turbulent or steady. Financial objectives can help determine how you invest—be it through an aggressive portfolio of stocks and equities, or a more tempered approach that is heavy on mutual funds and index funds. Your goal-setting may also lead you to consider the role of outside expertise from a financial professional who can provide strategies for success.

Most investors put retirement savings at the fore of their market strategy, regardless of age. Those who are on the cusp of retirement are well-suited to take a conservative investing stance. Ideally, the average retiree will have spent several years in the market, making the most of the general trend toward market growth over a longer period of time. Those who may have entered the market late, however, may not have gained as much. Regardless, market-related losses are unavoidable; the central objective now is to minimize future depreciation.

Your appetite for risk should be largely based on how far away you are from reaching your goals, and your comfort level with potentially losing money on the sum you choose to invest.

2. Consider Taking Advantage of Falling Prices

A bear market may provide opportunities to increase your investments, taking advantage of lower share prices as the market cools. Stocks and other financial products that may have been cost-prohibitive during the last bull run could now be more affordable and within reach for adding to your portfolio.

If you’re in your 30s, your approach to a bear market may be more aggressive as you have more time to see your investments pay off. In fact, a bear market may even provide opportunities to increase your market investments, taking advantage of lower share prices for assets that are posed to grow during a future bull market. Alternatively, those in their 40s and 50s may want to take a more modest approach to investing, in order to leave themselves less exposed to market volatility. In this case, it may be more prudent to take existing and new investments and put them into more conservative areas of the market.

3. Explore Your Options

Bear markets might be met with doom and gloom more often than not, the truth is that a down market doesn’t necessarily drag down every investment equally. Some sectors have less exposure to the market conditions that lead to a reduction in value, and some individual stocks may experience growth even with the overall economy goes into a recession. Although these opportunities may be harder to find outside of a bull run, that doesn’t mean they aren’t there.

Certain investment vehicles are also designed to be responsive to overall industries and sectors. Exchange-traded funds tend to react in near-real time to market conditions, swapping out holdings that are underperforming for other opportunities. These products make such changes independent of a fund manager, which gives them a different investment strategy than active investment products like mutual funds. Mutual funds and bonds can still deliver value, however, and are a good inclusion in a diversified portfolio.

As you explore these options, be sure that you’re not chasing trends or looking to time the market. The pitfalls to these actions often outweigh the benefits and are no substitute for a robust plan. Instead, consult with a financial professional who can use his or her expertise to help you uncover opportunities without incurring the risk of making unnecessary mistakes.

4. Monitor Market Conditions

The market changes daily, whether we’re in a bull or bear period. Although your holdings may also fluctuate in value, it’s vital to keep your own financial scenario at the core of how you receive financial news.

As you look at the value being created or lost, make sure you are acting in accordance with the goals for your investments. Pulling out funds or abandoning an otherwise successful strategy out of fear rarely gives you an advantage. These missteps typically end up making matters worse. In some cases, the best thing to do is nothing at all: if your investing strategy worked when the economy was more stable, there may be every reason to keep a steady hand during uncertain times as well.

5. Don't Go At It Alone

Financial professionals can help you tackle each of the points above, while also crafting a short- and long-term investment strategy that aligns with your goals. If you want to make the most of a bear market for short-term gains, or craft a plan to guide you through retirement, there’s a financial advisor out there who can make these efforts a reality. Experts have experienced bear markets in the past, and have learned from trends that governed similar conditions in the past. Plus, if you need to change direction or strategies, it's easier when you are working with someone who knows both your holdings and your goals and can help guide you

Despite the doom and gloom that comes with a bear market, there are still opportunities to either make the most of lower prices or dip your toes in the water for the first time. With the right strategies, goals, and experts, you can make the most of an otherwise uncertain time.