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If the pessimists are right about a coming bear market, are you prepared?

by , 25 July 2014

When global stock markets continue to climb, sure enough there will be those who come out to say the end of the bull market is near. It's time for the bears to have their turn.

So if a bear market is around the corner, how can you prepare?

Let's take a closer look

How investors behave

It’s funny how the behaviour of investors works…

Throughout stock market history, investors show that they tend to get too optimistic when the stock market is high, Alexander Green in Investment U explains. Equally so, they tend to get too pessimistic when the stock market is down and a bear market is in full swing.

Many investors are only just turning back to the stock market after the financial crisis of 2008.

Investing great, John Templeton once said:

Bull markets are born on pessimism, grow on scepticism, peak on optimism and die on euphoria.

Looking at what’s going on in the stock market now, we’re well into the optimism stage of the market. But it hasn’t reached euphoria just yet.

This current bull market is over five years old now. The 90s saw a bull market last longer than that.

How to prepare for a bear market

But one thing is for sure, it’s time to make sure you’re comfortable with your investments. And how much you have in the stock market.

You also need to ensure that you have a diversified portfolio. You shouldn’t have all your money in shares. It makes good sense to invest in other assets too.

Good risk management is also a must. Ensure you’re using trailing stop losses on all your positions. Then if the market does take a tumble, you can sell out before your portfolio plunges.

There are always market pessimists. But as long as you have a sturdy investment strategy, you should be in the perfect position to ride out any storm.

So there you have it, how to prepare if the pessimists are right about the stock market.

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If the pessimists are right about a coming bear market, are you prepared?
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