Surviving Bear Country(ZT)
A bear market refers to a decline in stock prices of at least 15-20%, coupled with pessimistic sentiment underlying the market. Clearly no stock investor looks forward to these periods. Don't despair, there is hope! In this article we will walk you through some of the most important investment strategies and mindsets that one can use to limit losses - or even make gains - while the stock market is performing in such a manner.
Be Realistic!
First off, having a realistic mindset is one the most important things to do during an economic slowdown. Remember that it's normal for the stock market to have negative years - it's all part of the business cycle.
After a raging bull market, it's easy to forget the bad times. Take, for example, the late 1990s; it was a time of spectacular growth in the equity markets, punctuated by gains in the S&P 500 of 33.4%, 28.6% and 21.0% in 1997, 1998 and 1999 respectively. Historically, the market has grown around 8-10% per year (depending on whose numbers you use). To expect the market to grow at a 20%+ rate forever goes against everything we can learn from history. Occasional slowdowns are inevitable.
If you are a long-term investor (meaning a time horizon of 10+ years), one option is to just ignore the market and go on with business as usual. By this we mean investing in a regular, mechanical fashion known as dollar-cost averaging. By purchasing shares regardless of price, you end up buying shares at a cheap price when the market is down. Over the long run your cost will "average down" and you'll be better of in the end - at least that's the theory.
Where to Invest in Bear Country
There are a number of things you can do to protect yourself from bears - and maybe even eke out some gains. Let's take a look:
Conclusion
As all these tips suggest, caution is the name of the game. By having your money on the sidelines or invested in bond funds, value stocks, defensive industries and, under certain circumstances, on the short side of a stock you'll be well-positioned to endure a bear market much more gracefully. Adopting strategies like dollar-cost averaging, staying realistic and avoiding panic will also help you keep your assets out of harm's way.
Be Realistic!
First off, having a realistic mindset is one the most important things to do during an economic slowdown. Remember that it's normal for the stock market to have negative years - it's all part of the business cycle.
After a raging bull market, it's easy to forget the bad times. Take, for example, the late 1990s; it was a time of spectacular growth in the equity markets, punctuated by gains in the S&P 500 of 33.4%, 28.6% and 21.0% in 1997, 1998 and 1999 respectively. Historically, the market has grown around 8-10% per year (depending on whose numbers you use). To expect the market to grow at a 20%+ rate forever goes against everything we can learn from history. Occasional slowdowns are inevitable.
If you are a long-term investor (meaning a time horizon of 10+ years), one option is to just ignore the market and go on with business as usual. By this we mean investing in a regular, mechanical fashion known as dollar-cost averaging. By purchasing shares regardless of price, you end up buying shares at a cheap price when the market is down. Over the long run your cost will "average down" and you'll be better of in the end - at least that's the theory.
Where to Invest in Bear Country
There are a number of things you can do to protect yourself from bears - and maybe even eke out some gains. Let's take a look:
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Conclusion
As all these tips suggest, caution is the name of the game. By having your money on the sidelines or invested in bond funds, value stocks, defensive industries and, under certain circumstances, on the short side of a stock you'll be well-positioned to endure a bear market much more gracefully. Adopting strategies like dollar-cost averaging, staying realistic and avoiding panic will also help you keep your assets out of harm's way.
by Investopedia Staff
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来源: 文学城-jim366