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5 Bear Market Investing Strategies


As an investor, you are used to seeing prices rise and fall regularly. But at times, you might encounter a prolonged drop in prices. It might be a bear market, which happens when the prices of key assets fall in a market by at least 20%. Let’s take a closer look at smart bear market investing strategies to apply when the market is heading down.

A financial advisor could help you create a financial plan for your investment needs and goals.

5 Bear Market Investing Strategies

Investing in a bear market can be fraught with challenges. But it’s not impossible to make smart investment choices during a bear market. Here are five investment strategies to help you make the most of the situation:

Focus on the long-term. Although it can be tempting to panic with everyone else when the market drops, take a second to reconsider before switching up your investment portfolio.

Of course, most investors are tempted to start selling off stocks at the first signs of trouble. But if you stop to look at a long-term investment horizon, then you might decide to stick to your original strategy.

One way to prevent yourself from selling out of the market too soon is to build up a cash reserve to rely on when the market is going down. Instead of being forced to sell stocks at a loss, you can tap into your emergency savings to ride out the bear market.

Dollar-cost averaging. The concept of dollar-cost averaging (DCA) is to put a set amount of money into the market on a regular basis. For example, you might decide to put $100 into the market each month instead of putting in $1,200 at the end of the year.

When implementing dollar-cost averaging, you can mitigate risk. That’s because the cost of shares bought over time is averaged out over a long investment timeline.

If you want to stick to a DCA strategy, it’s probably a smart move to automate this process. Otherwise, it can be tempting to skip a month here and there.

SmartAsset: Bear Market Investing Strategies

Income investing. When you purchase an asset with the goal of producing an income, that’s known as income investing. If you are targeting an investment that is expected to produce a regular income, that can be a more comfortable option in a bear market. But whether or not income investing is the right choice for you depends on your plans.

While income investing is an especially useful tool for retirees or soon-to-be retirees, it might not be the best option for a young investor with a long investment timeline ahead of them.

Short selling. This is an undeniably risky strategy. But it’s possible to turn a profit in a bear market with short selling.

Essentially, short sellers are betting that the price of a stock will fall before they have to pay for the borrowed shares. Usually, a short seller will borrow a stock from an investor who owns the share and try to sell it on the open market.

It’s a risky move. But it could be the right fit for your risk tolerance.

Rebalanced asset allocation. As the market changes, it might be time to revisit your asset allocation. If you aren’t comfortable with the current setup, you can rebalance the portfolio to suit the changing times.

When in a bull market, it could be a smart move to focus on safe-haven assets. These types of assets are expected to help your portfolio maintain its value through a bumpy bear market. A few popular safe haven assets include precious metals and consumer staple stocks.

Take a look at these other safe haven investments to see what works best for your portfolio. Even outside of a bear market, regular rebalancing is a useful way to ensure your portfolio is aligned with your financial goals.

Bottom Line

SmartAsset: Bear Market Investing Strategies

A bear market can be a rough ride for investors. But even if the market is on a downward trend, savvy investors can still implement worthwhile investment strategies. There is not a single investment strategy for a bear market that works best. Instead, you’ll need to decide which one you are most comfortable with.

Tips for Investors

  • Consider working with a financial advisor when developing an investment strategy for a bear market. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to see how a bear market could impact your portfolio, SmartAsset’s investment calculator can help you determine how it will be affected.

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