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When you see a big fire, you run away from it. After all, it’s natural to run away from a crisis. And that’s exactly what a falling or bear market seems like-a crisis in the making.
So, naturally, at the first hint of a fall in the market, everyone starts to panic. But if you are wise and make the right moves, you can survive a lean market period. And if you are really smart, then you can even come out more profitable!
Surprised? Don't be. We share a simple recipe that could help you do well in a bear market.
Recipe that could help you stay stable in a falling market
First, you should stay calm. It is normal to panic and worry about losing your hard-earned money when the markets fluctuate. But it usually stabilises in some time. Think about the times when you were stir frying rice, Chinese style. Fire all around the pan was often inevitable, right?
Similarly, we may suggest that you stay put and hold on to your composure. This could help you avoid rash financial mistakes
Selling off a stock that has been a consistent performer for many years but suddenly tanked, requires some contemplation. You need to understand the reasons behind the drop in the prices. Stay calm and wait for some time. Check whether stock prices have actually fallen or they are merely fluctuating before becoming stable again.
Yes, you may be losing some money on non-performing stocks. But it may be only temporary. These very stocks might help you bring reasonable returns once the markets recover. One of the best option is to stay invested. Do not sell off your stocks as soon as you see a few downturns.
The next step is to look for suitable funds to invest in. In a bear market, Mutual Funds and Exchange Traded Funds (ETF) are one of your best options. After all, you have an expert deciding for you. Exchange Traded Funds are just a kind of Mutual Fund that can be bought and sold on the exchange like shares.
These Funds often aim at providing returns that closely correspond to the total returns of securities as represented by corresponding indices, subject to tracking errors. Thus, investing in Mutual Fund is one of the better options. In fact, some Funds invest in non-Equity assets like Debt and Gold. These may step up and could deliver returns when the equity markets aren’t doing well.
Many investors stop investing in SIPs when the markets start to tank. Don’t do that. In fact, you could go the opposite way and start an additional SIP. This way you can take advantage of falling markets. As one of the most famous investor of all time once said, “Be fearful when others are greedy and greedy when others are fearful.” Sounds like good advice.
This may sound like a gamble, but you may find a variety of stocks at low prices in a bear market. Remember, buying stocks at low prices may prove to be a good bet. After all, you have to buy low and sell high to make profit.
Analyse the past performances of these stocks. Study how they usually perform. Suppose you find a stock that generally performs well but is in a slump currently, you could buy it at a cheaper price now with the hope of getting reasonable returns later.
Also, remember that in the long term, stocks usually do well if the company posts profits consistently. So, if the stock you hold or are looking at belongs to a good company, then it may be time to buy more of it. This also helps you lower your average cost of investment, thus increasing your potential profits in the future.
Related: The secret sauce of managing your mutual fund portfolio and excelling at it
Now you have a recipe for investing in a falling market. Stir in the ingredients and follow the procedure. You could end up with a delicious recipe for your investment portfolio. But it only works if you stay calm. More importantly, keep an eye on it and don’t get distracted! No amount of garnish can save your dish once it is burnt.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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