What to do in bear market

What to do in bear market

       

The stock markets faced heavy fall in their prices all over the world because of corona threat. This sudden fall in stock markets from last two weeks drives the market into bear market.

What is bear market?

Bear market is nothing but a period of time when the stock market faces the decline of 20% or more from recent high. Bull market and bear market are the natural part of market cycles. Bull markets can run for a long time but it can’t run forever. Bear markets are normal and should be expected.

So if bear markets are normal thing , then why investors are in fear?

The reason behind the fear of many investors is based on many factors. As the investors facing losses in the market, the pessimism grows. Bear markets make the investor uneasy. The drop in investor’s confidence drives the bear market longer.

If Corona ends, market will revive immediately?

        Corona is not the only reason behind this bear market but it is one of the reasons for this fall. This corona virus panic replaced the panic of global economic slowdown.

 Markets will get corrected when it got overvalued. Actually this Corona threat triggered the bear market. There are so many reasons behind this fall.

What to do now?

      First we should understand that when the stock markets begin to fall we don’t know when it will reach the bottom. Also we can’t predict exactly when it will get revived. Don’t panic we are all in the same market. So few things we should keep in mind to make this bear market favourable to us.

• ·       Always have emergency fund

All investors should keep some emergency fund for backup. Some people are panic in bear market because they don’t have enough cash to handle their near term needs. Having emergency fund is an important part in successful financial plan. It will be helpful when some unexpected things happened like this. How much should I save?

It completely depends upon the person. Normally people should have minimum three months of their salary but now in this scenario make sure you have minimum six months of your salary or savings. It not only helps you to avoid panic but also allow you to stay invested.

• ·       Stay away from margin leverage

Buying stock using margin essentially means that you're borrowing money from your broker to make a purchase. You use that margin to create leverage in your account. Margin leverage brings with it two key problems for investors, particularly in a declining market. The first is that when your leveraged investment goes against you, you lose money faster than you would have had you owned that same investment without leverage. The second is that when you sign up to accept margin leverage at your broker, you also sign up to abide by your broker's leveraged investing rules.

Those rules usually include clauses that let your broker close out your positions if your equity falls too far. That could lead to a position where you're forced to sell due to a temporary swing in market prices, even if share prices recover shortly after that forced sale takes place. In other words, even if your investments may be winners over the long run, if you're leveraged, you may not be allowed to hold them that long. Being forced to sell low due to margin requirements is a great way to lose money.

·      Look for a long term

Generally it’s hard to predict how long a bear market will last, and in some cases, they can be quite drawn out. So don't invest in a bear market with the hopes of buying low and getting rich within the year. Instead take a long-term approach in investing, and assume that any stocks you buy now are stocks you'll continue holding for a number of years. It’s essential that you have the ability to play long game during bear market.

Think about the stock market crash happened in the year 2008.The people who lost their shirts are primarily those who sold at the bottom of the market. Those who held on are experiencing new high in the markets. So always look in long term perspective.

 Also read : Corona virus and the stock market 

·      Look for buying oppurtunities

Bear market can be an opportunity to buy more stocks at cheaper prices. Remember downturn is not the permanent. Don’t miss out on market rebounds. Always be careful while making such moves in bear market and you should know your risk tolerance level. Before investing during bear market see the value of the stock. Don’t put all your money in a single basket. Diversify your investment. The right investment at lower level will give you great returns in future.  

Bottomline

Don’t panic. You can’t make any changes single handedly in the stock market. All the investors facing same situation but the way they handle make the differences. Investors should keep in mind that prices is not same all the time also you cannot stop correction in valuation. Don’t watch your portfolio daily that will create stress and fear. Have patience and be positive.

Wishing you to be financially successful

Happy investing