Investment

3 Things Not to Do in a Bear Market

October 14, 2016

Have you ever considered the financial moves that may bring you the best rewards in a bear market? Do you even know what a bear market is? If you’re like a lot of us, you don’t know the difference between a bear market and a bull one. So how are you expected to know what to do about one?

A bear market?

Fear not; your lucky day is here. We’ve put together some advice on what not to do in a bear market. But first, let’s define a bear market: a bear market is a declining market. It usually begins with a sharp drop in stock prices. It’s called a bear market because bears can be bloodthirsty creatures. And like its namesake, a bear market can ravage a lot of people, taking away up to 40 percent of their wealth in an attack. So you’ll want to know what not to do when that bear strikes.

Don’t change strategies

If you’re playing in the Super Bowl, you don’t decide at halftime to put your punter in as quarterback for the rest of the game. The same basic principal applies to bear markets. Changing strategies in the middle of the bear’s rampage isn’t going to fix anything. You went into the bear market with an investment plan; stick with it.

Stay away from expensive hedge products

Bear market investing can be a real bear. You may find yourself being offered all sorts of options designed to hedge your portfolio during these hard times. These offers could be anything from triple-down leveraged short ETFs to market-linked GICs to the kitchen sink plated in gold. These options will be expensive and generally don’t work the way they’re supposed to. The time to buy market insurance is before the bear starts stomping and snorting, not after.

Don’t sell in a panic

Take a deep breath and let it out slowly. When a bear market starts its run, you’ll hear from every expert in town. Most will be touting some form of doom and gloom; these dark scenarios will run the gamut from “worldwide depression” to “financial Armageddon.” It will be scary stuff, to be sure, but take a deep breath and let it out slowly. All you have to do is remember two simple words: don’t panic.

The wisdom of our ancestors tells us not to run from a bear; doing that will only attract its attention. Our financial history is littered with the carcasses of past bear markets. There will be bear markets coming at us again in the future. The world will survive, miraculously, even if the price of oil drops below $25 and the Nasdaq falls off by 10 percent. No one can accurately predict how high or low oil prices will go. If something drops by 50 percent, accept it and remind yourself that it could go down another 25 percent. There is no accurate gauge to apply. But if you stick with your strategy and you’re diversified, you can survive the bear’s attack.

Just relax and breathe.