Tips to Thrive in a Bear Market

Most investors don’t cheer for a bear market, but there are strategies you can use to make the most of it. A bear market is when prices of securities fall sharply, and a sweeping negative view causes sentiment to further entrench itself. Investors anticipate losses in a bear market and selling continues. A downturn of 20% or more inboard market indexes like the S&P 500 over at least a two-month period is considered an entry into a bear market. One strategy for a bear market is buying index funds at regular intervals through a 401(k) so you will prosper when the market finally rebounds. Another useful move is to buy inexpensive short and long-term puts on the major indices. But keep in mind trading derivatives often comes with margin requirements, and you may need access privileges through your brokerage account. You can also sell a naked put, which involves selling the puts that others want to buy in exchange for cash premiums. In a bear market, there should be no shortage of interested buyers. It can also be important to find assets that increase in price. Defensive stocks like food and personal care or sectors like utilities and real estate may do well even when others continue to lose value.