How to Tiptoe around a Bear Market

Investing in a bear market can be a scary proposition for many investors. When everything seems to be going down, it can be difficult to choose investments. Here are a few things to consider about investing during a bear market.

Finding the Investments

When you are in the middle of a bear market, it is important for you to realize that not every investment is going to perform poorly. Just because you hear a lot about how down the market is does not necessarily mean that you cannot make money. You may not be able to make as much money as you would in a bull market, but you can still make some money.

Bonds

One way that you can invest during a bear market is to get involved with bonds. By putting money into corporate bonds, you are going to be able to bring in a return regardless of how stock prices are being affected. Corporate bonds pay the bond holder a certain amount of interest over the life of the bond. This means that you can bring in regular interest payments even if the stock price of that company is not performing well. Bonds are a relatively safe form of investment because you are considered a creditor to the company that you lend money to. If the company goes out of business, you are going to be able to step in and collect the amount that you invested. 

Short Selling

Another way that you can invest in a bear market is to short sell stock. By doing this, you are going to be able to make a profit when the price of the stock declines. For you to short sell stock, your broker is going to have to borrow the stock that you want to short from another broker. This means that you are going to have to pay some type of interest on the amount that you borrow. However, if you choose the right stock, you can make some decent money doing this.

Inverse Funds

Another investment that you might want to get involved with is an inverse fund. With an inverse fund, you are going to be able to invest in an index fund that benefits when the financial index declines in value. For example, you could invest in an inverse fund that tracks the S&P 500. If the S&P 500 declines in value by 1 percent, you are going to make 1 percent in your account. You can even get involved in leveraged inverse funds. With this type of fund, you are going to receive twice the movement of the index. If the fund declines in value by 1 percent, your account will be credited with 2 percent. This allows you to invest in the bear market with only half of the amount of money that you would invest if you were betting on the financial index to increase.

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