We’ve entered the much-dreaded bear market. And studying your portfolio right now may not bring you a lot of joy. But don’t worry. History tells us bear markets, downturns, and even crashes don’t last forever. In fact, these moments actually are great moments to study companies and stocks — instead of focusing on your portfolio’s performance. And they’re great occasions to buy stocks.
So, where should you put your money in a bear market? Here, I’ll talk about what to do with $10,000. But you can scale this plan up or down depending on how much money you have to invest. Let’s get started.
It’s important to remember our investment horizon. I favor long-term investing. By that, I mean five years or longer. This gives companies a chance to recover if we happen to be going through difficult times — like today. And if the economy happens to be strong, this five-year period offers companies a chance to grow.
First, I would take $3,000 out of our $10,000 and focus on stocks that aren’t overly sensitive to the economy. Even if we’re in this for the long-term, we know that these sorts of stocks often perform better during times when consumers are spending less, for instance. Here, a great place to look is in the world of healthcare.
One possibility is Vertex Pharmaceuticals (NASDAQ: VRTX). The company is the leading seller of cystic fibrosis treatments worldwide. Clearly, patients need these medications regardless of the economic environment. So economic troubles are unlikely to weigh on Vertex’s revenue. Another example is Intuitive Surgical (NASDAQ: ISRG). Intuitive is the biggest player in the global robotic surgery market. The company generates revenue when it sells or leases its robots — and with each surgery through the sales of instruments.
I would invest another $3,000 in companies with a track record of dividend growth. Here, the best place to look is at the lists of Dividend Aristocrats or Dividend Kings. The Aristocrats are S&P 500 Index companies that have lifted their dividends for at least 25 straight years — the Kings have increased dividends for at least 50 years. The importance of dividends? They offer you income. And companies that have a long track record of lifting dividends probably would think twice before cutting the payment.
You can find dividend stocks across industries. But in a bear market, you may want to focus on companies that sell essential items. Target (NYSE: TGT) is a King to consider, while Clorox (NYSE: CLX) is an Aristocrat to check out. These days, companies generating revenue through essentials may suffer less than companies depending on discretionary purchases.
The next step: I would invest $2,000 in growth stocks that have suffered — and may continue to suffer. That’s as long as I believe in their long-term story. Here, two examples are Tesla (NASDAQ: TSLA) and Etsy (NASDAQ: ETSY). Tesla’s the leader in the electric vehicle market, last year delivered a record number of vehicles, and is ramping up its production with two new factories. Etsy (NASDAQ: ETSY), an e-commerce platform for the sales of handmade items, generates billions of dollars in gross merchandise sales — and continues to grow buyers and sellers using its platform.
If you’re cautious…
These types of stocks may suffer during the bear market. Right now, you can get them for bargain prices. But they could rebound sharply at any point. Of course, they also represent more risk than the other sorts of stocks I’ve spoken of so far. So, if you’re a cautious investor, you may want to limit your exposure. Instead, you may want to opt for other companies that have suffered — but have a longer track record of success. Amazon (NASDAQ: AMZN) might be one to consider.
Next, I would set aside $2,000 as an opportunity fund. You could use this to invest at any point during the bear market — or as the market starts to rebound. The idea is to have some cash available to invest in case you decide to add to positions of a favorite stock. Or if you come across a new investment opportunity.
Finally, bear markets may seem scary at first. But the good news is there are two big bright spots. First, as mentioned earlier, these markets are temporary. Second, the bear market brings us this opportunity to invest differently. And these investments usually pay off in the long run.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon, Target, Tesla, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Amazon, Etsy, Intuitive Surgical, Target, Tesla, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.