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How to invest during bear market?


Bear market is defined as a market trend in which price of securities fall 20% or more from previous market peak and last two months or longer. Usually bear market is caused bu declining economic activity caused by a change in monetary policy. Recession is accompanied by low employment. Stock market crash, drop in stock price of 10% or more in just a day or two can cause bear market and negative investor sentiment. It can occur in any asset class, stocks, bonds, currencies and commodities or section of industry. In stocks bear market is measured by indexes like Dow Jones, S&P 500 and Nasdaq, if they are continuing to lower over period of time. Bear market can be recognized through observation of business cycles. It is the opposite of bull market or expansion phase when asset price continue to grow over time. sometimes corrections, less severe decline in price that lasts less than two months.

Investors use different steps to protect themselves like increasing amount of cash and decreasing the number of growth stock or investing in funds that perform better in bear market. The most extreme method is capitulation or selling everything. Since long term investing outperform other approaches it is better to stick with it through tick and tin and avoid missing the rebound. Investing in more stable financial instruments like bonds reduces exposure to the market conditions and minimizes the effects. Most strategies can only limit downside exposure but they can't completely eliminate it. Investors who want to maintain position increase investment in large and strong companies that are able to take the financial blow that comes with bear market. Companions that service the needs of business and consumers like food business or healthcare. Small growth companies are avoided because they usually don't have means to endure downturns. 

Investment allocations is very important element when preparing and protection your portfolio from financial downturn. The key is to find right balance between stock, bonds, mutual funds and cash. some investors can turn to riskier strategies. Investor can borrow money from brokerage firm to buy more stock hoping to make larger profit during bull market. This is risky because stock that you borrow for your portfolio are collateral for the money you borrow and if the stocks value falls below certain level brokerage company can force you to sell it. Even though short selling may sound like a good idea during the bear market it still caries unlimited amount of risk. Nothing in the market moves in straight line so upward trend is also possible during the bear market known as bear market rally.

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