10 Reasons Not to Worry About Bear Markets

Bear Market

A bear market is a phenomenon that occurs when investment prices drop by 20% or more. Bear markets may occur when the economy moves into a recession. This phenomenon is not unique to the United States. According to CNBC, the country found itself in a bear market territory in 2020 when the S&P nearly tumbled by 4%. Since bear markets signal that the economy is at an all-time low, challenges like unemployment or depletion of investment portfolios may occur. As a result, you may avoid investing when the economy is experiencing a bear market since you may worry about the safety of your investments. However, we are here to show you that bear markets are nothing to worry about. Here are 10 reasons why you should stay calm in the face of a bear market.

1. It Presents an Opportunity to Buy Stocks Cheaply

During a bear market, the stocks will likely be sold at a discount. It is usually an attempt to woo back reluctant investors. However, it would help if you did not turn down an opportunity to buy them cheaply. If you decide to invest, ensure you apply a technique called dollar-cost averaging. This technique involves investing with small specific dollar amounts regularly. The method spreads out your investments and allows you to buy into the market at different times.

2. It Does Not Last Very Long

It is normal for investors to begin selling stocks during this period. That is understandable since they don’t know how long it will last, and their portfolio’s decline will usually occur soon after. However, according to Hartford Funds, it usually lasts only 9.6 months. The best thing to do is to wait for the market to experience an upturn. If you sell during a time when there is a downturn, you will make losses.

3. It Allows You to Rebalance Your Portfolio

During a bear market, bond returns tend to be positive. That presents you with an opportunity to protect your portfolio. For instance, you could raise some money by selling into market rallies. A market rally occurs when a flat or declining price trend occurs rapidly for an undefined period. Market rallies, therefore, allow the market to rebound with positive gains.

4. It Does Not Always Lead to Recessions

Recessions are scary, and the United States has been a victim of them before. According to Investopedia, America suffered a recession from 2008 to 2009 which led to 10% of unemployment rates. During the 2020 COVID-19 pandemic, the country’s economy briefly suffered, and a bear market occurred. Some people likely assumed that it would lead to another recession. However, the bear market situation in 2020 did not lead to a recession.

5. Corrections Happen Once a Year

A correction occurs when there is a decline in the market by at least 10%. So, market prices fall far more often than you would expect. Corrections are technically inevitable, so investors have to grapple with the fact that the market experiences hiccups from time to time. As earlier stated, do not let the corrections be the reason you make rash decisions like selling your stock. Therefore, if a bear market occurs due to a correction, you can be assured that the market will go back to normal soon.

6. It Has Become Rare

The last time a bear market occurred was during the COVID-19 pandemic, so the phenomenon still remains fresh in our minds. As a result, investors may fear that it will remain a trend. However, bear markets occur less frequently than you would think. For instance, 12 bear markets occurred between 1928 and 1945, which translates to one bear market every 1.2 years. However, after 1945, bear markets have been occurring about once every 5.4 years.

7. It Does Not Affect Companies the Same Way

Generally, all companies in a given stock index fall. However, a bear market can’t affect all companies the same way. Even during the COVID-19 pandemic, nearly all industries were affected, but some were more affected by others. Since some companies do not immediately get affected by bear markets, it presents you with an opportunity to diversify your portfolio by buying shares from them.

8. It Tends to Lead to Recoveries

Although bear markets temporarily slow down the economy, market growth comes almost soon after. The United States has experienced many bear markets, yet it has continued to emerge stronger. Although you may experience some losses on your investments, you will gain much more if you hold onto them. Eventually, your investments will earn positive returns. However, it would be different if you had withdrawn your investments.

9. It Does Not Affect Your Dividends

Dividends are another way people earn money besides relying on their 9-to-5 job. Usually, your dividends increase when the company makes profits. However, what happens when your country is in a bear market situation. You are likely to assume that your dividends will reduce now that the market is suffering. However, you will be happy to know that you will still receive the same dividends. In fact, some companies may even raise your dividends. So, it is up to you to seek such companies to benefit from them greatly.

10. It Does Not Massively Affect Your Stocks

When a bear market occurs, it is easy to assume that you will experience a huge percentage loss. In most cases, stocks decline by 35% during a bear market. That seems a lot until you realize that, on average, stocks drop by 24%, which is not far from 35%. So rather than fixate on this loss, you could patiently wait for the market to recover.

Conclusion

As you earn an income from your job, it is normal that you will think of investing your earnings at some point. However, with the bear markets that occur occasionally, you may decide to hold onto your savings. What you need to remember is that losses are normal. Think of investing as a football game. Sometimes you will emerge the winner and sometimes the loser. So, you wouldn’t let the loss deter you from the game, would you? There are ups and downs in life, so you do not need to fear bear markets since they are fleeting phenomena.

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