Investing In A Bearish Market: What To Do
Posted on September 3rd, 2011
Investing can be a complicated task to master, and can be even harder to understand during a bearish market. A bearish market is one in which stock prices are falling, and the overall perception of the market is down. A bear market usually occurs when the economy is in a recession, unemployment is high, or inflation is rising.
The key to investing in any market is diversification. There are four main asset classes that many investors diversify between and they are: bonds, large cap stock, small/mid cap stock, and international stock.
Bonds are the stability of a portfolio, and act as a cushion when there are swings in the market. Large cap stocks are large companies with their headquarters in the United States. Small cap stocks are simply small companies in the United States. Internationl stocks are companies that have their headquarters outside the United States.
One of the main determining factors of how much to put into the bond category and how much to put into stocks is the age of a person as well as the time frame as to when they will be needing the money invested. The longer the time frame and younger the person the more money they could have in stocks and stock mutual funds as they have a longer time to have the swings in the market even out to an average return. Another factor is how risk adverse an investor is. If someone does not feel comfortable investing in stocks, then simply invest in stock mutual funds which are simply many stocks within one investment.
Just because some consider the market a bear market does not mean an investor should change investment styles. Timing the market is very had, and many professionals do not complete it successfully. Remember you need to be right when you sell an investment and right again when you buy its replacement. Timing the market is hard to do, and a diversified portfolio will help investors weather the storm in a bearish market.
Posted in Uncategorized | Comments (0)