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Five bear market survival strategies for investors

by , 13 May 2020
Five bear market survival strategies for investors
A bear market refers to a widespread decline in asset prices of at least 20%.

We've seen stock markets fall 20% and more in recent months. The oil price fell through the floor, and unemployment is soaring.

This is not a fun time to be in, and you might be confused, panicked or just blown away.

The good news is, this is only a phase - and it will also pass. Things will turn around and look better again.

But if you want to be able to take full advantage of the turnaround - I suggest you have a look at these strategies for surviving bear markets.
 

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Five things to do if you want to survive this bear market
 
Bear market Survival Tactic #1 – Don’t panic
 
There is a Wall Street saying: “The Dow climbs a wall of worry”. In other words – over time the stock market climbs even when investors are worried.
 
What this means for you is that even if you’ve seen a crash in your own portfolio – don’t feel like it’s the end of the world. Don’t click the sell button on everything. Keep calm and carry on!
 
Investors should try to always separate their emotions from the investment decision-making process. What seems like a massive global catastrophe one day may be remembered as nothing more than a blip on the radar screen a few years down the road. Remember that fear is an emotion that can cloud rational judgement of a situation.
 
Bear market Survival Tactic #2 – Diversify
 
Simply put – you should hedge your bets. Don’t invest all your money in only two or three shares. Don’t even invest in only shares.
 
Your portfolio should be spread between rental property, bonds, cash, commodities like gold, alternative assets (could include crypto currencies and art) as well as shares.
 
A proper asset allocation strategy will allow you to avoid the potentially negative effects resulting from placing all your eggs in one basket.
 
Bear market Survival Tactic #3 – Make use of Rand Cost Averaging
 
Remember – it’s impossible to call the bottom of a bear market. You can easily end up buying in too soon, and still experience losses.
 
So, instead of buying R30,000 into a share all at once rather spread your buying out over a couple of weeks.
 
Put R10,000 into a share right now. Wait a week or two, if there’s weakness in the price buy the next R10,000, and do the same again.
  
When you invest in ETF’s this is effectively what you do each month – buy a little bit more.
 
That’s how rand cost averaging works – you buy a little more shares periodically over time. This gives you an average buying price. And it will lead to a better overall entry in a down market.
 
Bear market Survival Tactic #4 – Buy into defensive industries
 
Defensive stocks have always been great investments in bear markets. They tend to hold their value very well – and recover consistently.
 
With the Covid-19 crisis the typical defensive stocks you want to look at are pharmaceutical companies, food retailers, food producers and some agricultural companies.
 
Tobacco stocks are typically defensive – but with the banning on the sales of cigarettes they’ll see a reduction in sales unlike they have ever seen!
 
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Important: If your portfolio has plummeted thanks to the Covid-19 crisis, you should look at how to give your portfolio, the “Hedge Fund Advantage”.
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Bear market Survival Tactic #5 – Risk only what you can afford to lose
 
When you invest you know when you are taking bigger risks and when you aren’t.
 
Money in a fixed deposit account is low risk. But the returns will be low. So naturally you’ll want to look at higher returning assets like shares, and maybe even higher returning shares like penny stocks.
 
But remember – the more risk you take for higher returns, the bigger your chance of losses as well.
 
That’s why you shouldn’t risk money you may need in 3 months’ time to pay university fees, or your emergency fund for tough times… Once you start doing that, you are gambling and no longer investing…
 
A crashing market can be a scary place to invest in. But if you find yourself amidst panic – you should use these strategies to steady yourself.
 
That way you’ll come out the other end a better (and hopefully wealthier) investor!
   
Here’s to unleashing real value,
Francois Joubert,
Editor, Red Hot Penny Shares  
 
PS. If you want the details on stocks I believe can profit through this crisis, go here!


Five bear market survival strategies for investors
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