How To Invest Money In A Bear Market

During difficult economic times many people want to know how to invest money. A bear market is usually defined as a drop of 20 percent of more in the average stock price from the previous average high. While these times can feel depressing, they can actually be opportunities for great investments and impressive long-term profits.

It is true that there have been two or three major recessions and one Great Depression in the previous century, but the stock markets are naturally in constant movement, heading up or down for days, weeks, or months at a time. It is common for the stock losses accrued during a bear market to be more than made up by the recovery period. For example, the Dow Jones Industrial Average fell 46 percent in 1974 only to rise 49 percent the next year. The point is that investing in a bear market will require some patience in order to see good returns.

How to Invest if You Have Time to Spare

Many investors operate in a mode of fear during bear markets. Afraid that their profits will continue to drop farther, they sell off their stocks in order to place their money in safer accounts. Keeping in mind that the market has always gone back up eventually, you can capitalize on these discounted sales. You should focus on buying up shares of traditionally strong-performing stocks as these will be likely to return to great profitability after the market recovers. Another strategy is to put money in industries that went down first during the recession. These are usually the hardest hit stocks as people pulled out in panic. Yet they may be the first to recover again, and even if not, these industries will usually recover at some point and you will make money.  If you can just wait out the recession on all your stock purchases, you will have gotten a really good deal by buying at bargain prices. You can think of a bear market as a really good clearance sale.

If you are not comfortable trying to pick out the right stocks yourself, buying more shares of mutual funds can also be a good way to invest in a bear market. These funds put money into hundreds of different stocks and other assets, spreading out the risk of any one stock failing and taking the pressure off of you to learn all the specifics about each stock-offering company.

How to Invest if You are Near Retirement

Bear markets are hardest on those who need to use their money right away or within the near future. For those in this situation, bear markets are not a time to be investing in stocks since it is impossible to predict when the end of the recession will come. These people may want to hold out as long as possible on selling their current stocks, but any outside funds should not be put towards buying more stocks during a down market.

Those who can buck the trends of fear during a bear market will be able to make the most of these troubling times, as long as they can afford to let their money sit tight.  With a long-term perspective, a down economy can be the perfect time to start or continue investing in stocks.

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