Should You Invest in a Bear Market?

Should you invest when the market experiences a downward trend or wait for things to turn around? For some new investors, market downturns seem too risky because there is no way of knowing how far down the DOW will trek. Still, down markets also present significant opportunities for investors to grab blue chip stocks at a steep discount.

Your decision to invest should go beyond the current direction of the market. Savvy investors research their opportunities, know their risk tolerance, diversify their investments, and remain calm for market ups and downs.

Invest Regardless of Market Conditions

Regardless of market conditions, investing in different vehicles is essential to financial success. A down or bear market is typically temporary, lasting on average 284 days. In economic terms, bear markets are short-term stock market conditions compared to bull markets, which last, on average, 3.8 years.

During market downturns, you might want to adjust your investment strategy. For example, infrastructure stocks and government bonds usually fare well in down markets.

Don't Let Down Markets Scare You

Research suggests that 44% of Americans do not invest in the stock market. Experts posit that trust in the market flailed after the 2008 financial crisis and suggest the current market volatility doesn't help.

All investors need to understand the cyclical nature of the market. It is natural for the market to experience upward and downward trends. The economy will recover, and how you choose to invest now will determine how you benefit in the coming months and years.

Know Your Risk Tolerance

The key to a successful investment strategy is not about when you jump into the market but about knowing your risk tolerance. Knowing your tolerance will help you determine the investment vehicles that are best for you.

If you are too emotional, a market downturn will encourage you to sell off your stocks, potentially leaving significant money on the table. Nervous or anxious investors should stick to low-volatility stocks, bonds, and fixed-income vehicles.

Prepare for Worst-Case Scenarios and Diversify

Knowing the stock market will ebb and flow, investors need to prepare for inevitable bear markets. Diversification is the best tool for protecting or safeguarding your finances.

Diversification refers to investing in various investment properties, such as stocks, bonds, and other tangible assets, like real estate. While diversifying your portfolio will protect you in market downturns, the strategy also results in a risk-return tradeoff, meaning by reducing your risks, you are also reducing your potential profits.

Create Long-Term Goals

The problem with only focusing on the current market conditions is it suggests a short-term vision. Investing is not for short-term objectives; it is for long-term gains.

Research shows that stocks outperform most other investments over the long term. Focusing on the big picture makes it easier to view bear markets as opportunities to add to your portfolio.

If you are new to stock trading and investing, talk to a financial advisor, preferably a fiduciary. A licensed fiduciary must act in their client's best interest, not their own.

Investing in the stock market is always risky. Learning how to mitigate your risks and focus on the long-term is a personal journey, dependent on your risk tolerance. However, most experts would agree there is no wrong time to enter the market.