Rising oil prices, economic war, inflation, valuation worries and ongoing speculation? How should we as investors deal with these extreme declines and market in which all investors are selling out of fear. Alphastocks Would you like to offer some handles, so that you can come out of these difficult times stronger.
In the past 92 years, the stock market has spent roughly 20.5 years in bear market territory. A bear market occurs when the price of shares falls by more than 20% from the highest prices, due to an overly pessimistic outlook and poor general market sentiment. On top of that come the many uncertainties, as mentioned above and you have a recipe for a bear market.
The NASDAQ entered a bear market last month. The tech index took a harder hit than other indices as valuations skyrocketed. The S&P 500 has now entered a bear market. Yesterday the index fell, putting it 20% below the all time highs of January noted.
Managing the current bear market
Investing in a bear market is not easy and it can be a painful process. It’s easy to invest on the way up, it’s not as easy as it is on the way down, although the returns this way (over the long run) will be better than if you start in a bull market.
But even in hesitant times, it shouldn’t affect our long-term story. If you’ve always been a constant investor, your strategy shouldn’t change now. In fact, as long as fundamentals remain unchanged, it makes more sense to invest at better valuations whenever possible. And there is some consolation here, just look at the stats:
- The S&P is rising every 3 out of 4 years.
- The average bear market lasts 289 days.
- The longest bear market occurred during WWII and lasted for 535 days between 1940 and 1942.
- The average decrease is 33% in bear market periods.
- It takes an average of 2 years to recover.
Of course, when the outlook is great, it’s easy. Not so much when there are a multitude of problems. But if you’ve mapped out a long-term thesis, whether it’s an index investing strategy or a stock-picking strategy, now might be the time to average and smooth out your cost base.
Historically, US markets have always bounced back to reach new all-time highs, however long it takes. Maintaining a regular investment strategy or dollar-cost-averaging (DCA) means that when that rebound period comes, your returns will pile up faster than you think, so just make sure you’re investing in the right type of company.
Tips for falling prices
- Turn off your emotions
- Dollar Cost Average (DCA)
- Think carefully. Sometimes doing nothing is best
- Spread your investments
- Only invest with money you can afford to lose
- Go for defensive positions
- Compare brokers. Perhaps it is possible to invest somewhere else safer and cheaper. Win win situation!
Start investing?
When you’re ready to start investing, you can buy most stocks and ETFs from DEGIRO or BuxZero.
This article was written by AlphaStocks†Are you curious about how you can better track your investments (crypto, shares and precious metals)? Then take a look at AlphaStocks†Besides the fact that you can track your investments for free, you can also read extensive stock analyzes and various blogs!
Disclaimer: The opinions and statements shared in this column are the author’s only and do not necessarily reflect or represent the opinions and views of Crypto Insiders.