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The 7 Best Ways to Invest in a Bear Market

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If you’re worried about the possibility of a bear market – conditions in which stock prices trend downward – you might be hesitant to invest in stocks. The stock market is known for its high rate of return and reliability when it comes to long-term investing, but if you believe a recession or similar challenging period is coming up, you may be interested in a different way to invest.  

Fortunately, there are a number of ways to adjust your strategy (and a number of new strategies to try) if you want to avoid the worst effects of a bear market.

How to Invest in a Bear Market

If you think that stocks are about to suffer from price decreases in the foreseeable future, here are several strategies that you can try:

  1. Invest in real estate. One of your best options is to invest in the real estate market as a way to diversify your portfolio. While the real estate market and stock market can influence each other, they also operate independently. If the stock market is tanking, you may be able to still consistently generate cash from your rental properties – or continue flipping properties for a short-term profit. Additionally, if you choose to work with a property management company, you can invest in rental property hands-free, letting someone else step in to handle the hard work of finding tenants, making repairs, and so on. You can also consider generating cash from your rental properties.
  2. Choose stable companies. If you want to keep investing in the stock market during a bear market, one of your best options is to choose stable companies. Look for sectors and businesses that will likely be undeterred by changing economic conditions, the best stocks to buy are like to be found there. For example, people will always need utilities and waste management services, even during a recession. Luxury watch brands don’t have the same universal durability.
  3. Look for great deals. Bear markets are also a good chance to shop for great deals. After an initial price plummet, you can often find individual companies reaching significant low points; even though the same leadership is in place and the company has great long-term prospects, the price takes a hit from recent market conditions. If you buy up these cheap stocks during a low point, you’ll reap the benefits when the market inevitably returns to normal. 
  4. Prioritize dividends. You can also prioritize investing in stocks that have a long and reliable history of paying quarterly dividends. These blue chip companies tend to be extremely reliable, capable of making it through even the toughest recessions. And if their stock price continues to fall, they’ll likely still be issuing dividends, guaranteeing you at least some kind of return. This is especially important if you’re nearing retirement or if you need some extra income. 
  5. Diversify with ETFs. You know the importance of diversifying your portfolio. In addition to stocks, you should be investing in bonds, real estate, and other assets as well. During a recession, it may also be wise to invest in exchange traded funds (ETFs), rather than individual companies; it’s a way to spread your investment across a number of different companies within a specific sector, or those that meet certain criteria. 
  6. Set a long time horizon. Even the worst bear markets tend to be temporary. Over the long term, the economy always bounces back. Accordingly, if you set a long enough time horizon for your investments, your short-term trades won’t matter as much. 
  7. Invest in yourself. Finally, consider using the bear market as an opportunity to invest in yourself. Go back to school or get a new certification; it can boost your earning potential for a lifetime.

Is a Bear Market on the Horizon?

Is there a bear market coming for the stock market? Experts are divided on the issue. Some investors believe that the worst effects of the COVID-19 pandemic have yet to be felt, since the federal government used delay tactics to stave off economic hardship in the short term. 

On top of that, we’re still in the longest-running bull market in history, with only one recent, short-lived correction to bring prices back to realistic territory. Accordingly, these experts predict that stocks will take a massive hit in the near future, followed by a long, protracted bear market.

However, other experts are more optimistic. They believe the economic measures put in place to stabilize the global economy have largely been a good thing, and that consumer optimism and market adaptability will continue pushing us to new heights.

The most experienced, knowledgeable economists in the world are the ones openly admitting their own uncertainty. That’s because markets and economies are both complex and unpredictable. Nobody knows for sure when the next bear market will occur. You’ll have to do your own research, form your own conclusions, and change your investment strategy accordingly.