A Bear Market Is Incoming, Is Your Investment Portfolio Ready to Deal?
- Author: Jessica Williams
- Posted: 2024-12-15
A nosedive in the economy looks like it's on the horizon and with that is going to come a lot of turbulence in the stock market. With a decrease in economic activity comes a lack of confidence in business performance, leading to downward spirals in stock prices.
Although bear markets aren't exactly encouraging, dealing with them is still manageable; you just need to be a little more patient, a little less risky, and a bit more aware.
Here are some sure-fire ways to excel under bear market conditions.
The Key Lies in Diversification
Having a diversified portfolio during good economic conditions is practically a no-brainer, but it's absolutely, positively imperative during a bear market.
When the economy is bad, businesses are going to be downsizing and outright closing down left and right, which can result in many investments completely tanking. A lot of times companies that take a hit during recessions don't really recover, causing their stock prices to stagnate over the long-term.
As it's really difficult to determine a stock's long-term outlook during bear markets, it's advisable that you invest in a lot of different stocks, even if you're highly confident in a particular few, because you never know what could happen.
Go After Recession-Friendly Industries
Believe it or not, there are actually quite a few industries that do substantially better during bad economic conditions. Usually, these industries involve providing cheaper, more readily available alternatives to more preferable products, but not always.
Some businesses (and related stocks) that do well during recessions include:
- Grocery stores
- Freight carriers
- Dollar stores
- Discount makeup companies
- Pharmaceuticals
- Car repair outlets
Be Skeptical of “Start-Up†Companies
There's a time and place for certain developments and recessions tend not to be the best time for trailblazing startups companies.
Startups tend to be iffy in general from an investment perspective, but they can really pay off if things go smoothly. However, things never go smoothly during recessions and the business models for most startups aren't known for their sustainability.
The goal of most startups isn't to be solvent, but to be picked up by large investors or bigger companies who can then figure out a way to make a profit. As an example, Uber, despite being a giant name in the public sphere, has never been profitable; it mostly relies on investor money to keep itself going.
Due to decreased economic performance and lack of investor confidence, you should definitely skip startups during recessions.
Think Very Long-Term
It can take several years for businesses to get back on their feet after taking a hit, so being patient is key to making good investments.
In the short-term, stock prices might sink down a little as there's turbulence in the economy and it may take several years for any substantial gains in prices to be had, but if you make the right bet, you could easily see double-digit gains in stock values when the economy hits its next expansion.
A good strategy is to pick a large, stable company with a diversified set of goods and services on offer, such as a multifaceted discount retailer, and make it a mainstay of your portfolio. Bare minimum, stocks will maintain their value, but more than likely, you'll see substantial gains down the line.
Pick Only The Most Highly Rated Stocks
Bear markets are the worst time to take risks and while previous indicators of success aren't a guarantee of future success, stocks that are highly rated tend to do well in the face of bad economic conditions.
Once again, you should value diversity in your portfolio, but consider making already established names a large portion of your investment efforts.
Getting Ready for A Bear Market
The economy is always fluctuating between growth and contraction, which presents lots of opportunities for both success and failure. When considering how to form an exceptional portfolio, you definitely need to be patient and risk-averse during lean times; while this may seem far from ideal, being slow and smart will go a long way to multiplying your initial investments.
