All financial markets witness boom and bust circles from time to time. When markets are down and stay down for a long period, that’s called a bear market. But the good news is that all bear markets turn to bull eventually. In the meantime, you might be wondering how you, as an African American should invest in it. Well, we’ve got you covered.
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What Is a Bear Market?
A bear market happens when broad indexes like the Nasdaq Composite and the S&P 500 fall by 20% or more from recent highs. For instance, we could say that during the bursting of the dotcom bubbles in 1999 and 2002, the Nasdaq Composite plugged into the bear market.
Or let’s say that a particular brand reports a low revenue and their stock dropped by 35%. We could say that the brand’s stock has fallen into the bear region, even if its overall market is doing fine.
The bear market typically lasts for about 15 months. Data from the Schwab Center for Financial Research says the shortest on record lasted only 33 days in early 2020, while the longest lasted two and half years. Check out these books on Amazon to further learn about the bear market.
How to Invest in a Bear Market
Bear markets can surely be a scary period for investors, and no one enjoys watching the value of their investments go down. But it can also be an opportunity to let your money work for you in the long run while stocks are trading at a discount. Having said that, here are strategies black investors can use to invest in the bear market rightly:
One of the things to avoid during a bear market is making knee-jerk reactions to market movements. An average investor usually underperforms the stock market in the long run, and one of the main reasons is moving in and out of stock positions too quickly.
When stocks fall and seem like they will continue to fall forever, it’s investors’ instinct to sell “before things get any worse. On the other hand, when the bull market happens, and stocks begin to rise, investors start putting their money for fear of missing out on gains.
It’s common sense that the primary reason for investing is to buy low and sell high. But making knee-jerk reactions to market movements means you’re doing the opposite. Invest in stocks you want to keep for long and don’t sell them off simply because their price dropped in a bear market.
Don’t Aim to Catch the Bottom
You won’t win by trying to time the market. One important thing to always remember during a bear market is that you’ll not win investing at the bottom. Only buy stocks because you want to keep them for a long time, even if the share price drops a little more after you buy.
Rebalance Your Portfolio
A well-diversified portfolio will consist of different asset classes, such as cash, bonds, and stocks. You should hold the ratio of each asset according to your risk tolerance, time horizon, and investment objectives.
In a simple term, portfolio balancing means periodically selling off overweight assets and buying underweight ones until your portfolio is back to its target asset allocation. But during the bear market, portfolio balancing may now include adding assets that you previously didn’t own. Here are books on Amazon that can help guide you through diversifying your portfolio.
Focus on Quality
During the bear market, it’s true that many brands usually go out of business. The truth is that it’s companies that are overhyped or have a strong competitive advantage that often go out of business when the economy is bad.
When the bear market hits, it’s important to focus on companies with strong balance sheets and unique selling points.
A bear market isn’t for the faint-hearted, nor is it the appropriate time to take too high risks. During this period, it’s advisable to try not to react based on the market movements.
Reacting to market movements can lead you to sell off stocks that you would have profited from in the long run or invest in the wrong ones. With the four strategies shared here, you should be able to make the right decisions. For tips on how to invest in stocks during the bear market check out these guides on Amazon.
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