Insights

3 things the world’s smartest investors do in every bear market

It’s happened before and will likely happen again.
The post 3 things the world’s smartest investors do in every bear market appeared first on The Motley Fool Australia. –

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

On June 13, 2022, the S&P 500 — one of the most popular indexes that tracks the largest 500 US public companies — entered a bear market, dropping more than 20% from its early January 2022 highs. There are no foolproof plans that can save you during a bear market, but there are some things smart investors do to weather the storm. Here are three of them.

1. Don’t panic

When the stock market enters a bear market, the first thing investors need to remember is that bear markets have shown to be an inevitable occurrence in the stock market. They’ve happened in the past and assuming they’ll continue to happen going forward is one of the safer bets you can make. The one thing you don’t want to do in a bear market is panic. Panicking can especially be counterproductive if it causes you to sell your stocks just because of the dropping prices.

The goal should always be to buy low and sell high, not vice versa. If you’re not nearing retirement, you have time on your side to let the market rebound. Not every stock that drops in price eventually rises again, but history has shown us that the major indexes — such as the S&P 500, Dow Jones, and Nasdaq Composite — and the market as a whole tend to bounce back eventually.

2. Focus on diversification

“Don’t put all your eggs in one basket” is a relevant saying in many aspects of life, and investing is no different. Diversification is one of the main investment pillars, and any solid portfolio should have a fair mix of assets. You never want to find yourself in a situation where the success or downfall of your portfolio is too reliant on too few stocks. Diversification is key to reducing some of the risks that come during bear markets.

If your portfolio is well-diversified, you may not experience the hypergrowth that can happen with single companies, but you’re also not totally exposed to sudden drops that can occur. For example, having a good chunk of your portfolio in Netflix (NASDAQ: NFLX) may have been lucrative while it was going from just over $150 per share in June 2017 to over $690 per share in October 2021. But with it dropping close to 70% in 2022, such a portfolio mix could be detrimental.

3. Use dollar-cost averaging

It can be hard not to let your emotions involved when dealing with money under normal circumstances, but this is especially true during bear markets when you’re seemingly losing money. To help with this, investors can begin to dollar-cost average. This involves making regular investments at set times, regardless of how stocks are performing at the time.

Not only does dollar-cost averaging keep you consistent because you invest at set intervals instead of stopping because prices are falling, but it also helps you lower your cost basis during bear markets. Your cost basis is the average price you’ve paid for a particular stock since you’ve likely purchased different shares at different prices over time. The lower your cost basis, the higher your profit when you eventually sell a stock.

The goal is to avoid a situation where you’re trying to time the market. Dollar-cost averaging helps with that. If you believe prices will keep dropping, it’s hard to convince yourself to buy at today’s price if the price will be lower soon. But you never know how long trends last. As an investor, one of the best things you can do is remain consistent and trust that you’re investing in great companies and funds that will produce great long-term returns.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 things the world’s smartest investors do in every bear market appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

More reading

Why is the Wesfarmers share price having such a stellar start to the week? Could be ‘one of the biggest success stories’: Top broker tips 87% upside for Lovisa shares Why Bega, Fortescue, Santos, and Silver Lake shares are tumbling lower Why are ASX 200 bank shares having such a cracking start to the week? Ethereum price collapses 35% in a week. Are crypto sharks to blame?

Stefon Walters has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info