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Smart strategies to avoid a bear market

A bear market is a situation in which the stock prices are falling. It is a harsh reality of the stock market that all investors need to face. However, if handled smartly, not only can investors survive the bear market but also earn profits from it.

Let’s discuss some smart strategies for a bear market to help you decide which stocks to invest in.

Bear strategies that could help you earn profits in the stock market today.

  • Going short: This is a way of making profits when the market is declining. One of the ways includes short-selling. Via this, you can borrow shares/an Exchange Traded Fund (ETF) from a company and sell them in the hope of buying back at a lower price. This requires you to have a margin account. It’s also a risky position if the market rises and short positions are called in.
  • Put option: Put options also increase in value when the market falls. They give you a security of a minimum price thereby establishing a floor for losses when you use it for hedging.
  • Inverse ETFs: These Exchange Traded Funds allow investors to make a profit when the market is declining. These ETFs go up when the major indexes, like the Nasdaq 100, go down. This will create a profitable situation for you in a bear market. They are easy to purchase and can be purchased from your brokerage account.

Affordability: Invest only as much as you can afford to lose. Do not invest your entire life’s savings in risky stocks. Invest only what you think you will be able to cope with even if you happen to lose your entire investment.

Fears: While making an investment decision regarding stocks to buy today, keep your fears in check and do not attach your emotions to the stock. The stock market has continued to grow despite the factors of political changes, natural calamities, etc.

Smart investment: Defensive stocks are those that perform better in comparison to other stocks during low times. They provide a decent return no matter what the overall condition of the market is. Defensive industries are those that manufacture and sell necessary items for people like shampoo, toothpaste, etc. These are the items that people use even during their hard times, which is why there isn’t much variation in their stocks. Investing in these could be one of your important bear market investment strategies.

Playing dead: In the financial market, playing dead means investing in securities with a short maturity period and more liquidity. Such securities include treasury bills, Certificates of Deposit, etc. These are a safe option during a bearish market. It’s better not to take very risky decisions during a bear market as you could run in losses. Surviving a bear market will not be tough with bear market trading strategies and if correctly done, you could make profits as well.

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