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Your ultimate guide to investing in a bear market

Believe it or not, it can be done.

bear market

In the world of investing, the term “bear market” often strikes fear and apprehension amongst even the most seasoned investors. It’s a period marked by falling stock prices, economic uncertainty, and widespread pessimism.

But what if we told you that not only is it possible to invest successfully in a bear market, but also that it has been done time and again?

In fact, mastering the art of bear market investing is not only possible but also a valuable skill that can potentially protect and grow your wealth in challenging times. While bull markets often tend to steal the spotlight, bear markets offer a unique set of money-making opportunities to those who are well-prepared.

In this article, we’re going to attempt to give you the skills required to gauge the bear market, understand it deeply, and make investments that turn green even when the market’s entirely red.

You may also like: Everything you need to know about stock market portfolios

What is a bear market?

Technically, a bear market is characterised by a long time where security prices decline by 20 per cent or more. When this decline comes throughout the market and lasts for 2 months or more, the market is said to be in a bearish sentiment.

Since most people usually make money when the markets are moving up and prices are rising, bear markets intuitively invoke a negative sentiment. This leads to more selloffs and more price dumps, trapping everyone in a vicious cycle of losses and anxiety.

What causes bear markets?

In the past, big economic factors like oil price dumps, pandemics like COVID-19, asset bubble bursts, over-leveraged investing, widespread investor speculation, etc. have been responsible for triggering market-wide selling.

How long do they last?

Typically, they last around 15 months at a time, but can go up to more than two years too. The shortest bear market ever recorded was only a little more than a month long. 

Investing in a bear market

Investing in a bear market isn’t all that complicated. All you need to do is take some time to stay diversified, invest from a long-term perspective, and try to stay disciplined. Here are some tips that could help you:

Allocating assets

The first thing to do to invest well in a bear market is to make sure that your portfolio is well diversified – not only between stocks but also between other asset classes. This will help you recover any losses if your position goes down after entry. Usually, a well-balanced portfolio will be spread across mutual funds, foreign stocks, domestic stocks, gold, bonds, ETFs, and maybe even cryptocurrencies.

This diversification depends on what your investment goals are – if you’re willing to take more risks, your portfolio will be a little different and so on. 

Also Read: Power your investment portfolio with growth stocks

Invest in defensive stocks

In a bear market, take care to invest in sectors that tend to be in demand regardless of economic conditions. Sectors like consumer staples, utilities, and healthcare will always be in high demand no matter how shot the market is.

This is the goldmine for bear market investing. When everything’s going down, focus on the sectors that will eventually always come back up.

Apart from evergreen sectors, you could also look into stocks that generate plenty of cash, have strong balance sheets, and have large market caps. Bigger companies tend to weather the storm better than smaller ones.

Don’t sell

Everyone’s selling for a loss during the bear turn. Panic selling all throughout the market might tempt you to get out of positions while you can too, but that’s the worst thing you can do.

This is simply because you can’t time the market. Many investors who sell during the bear market will miss sharp upturns and reversals at the bottom, significantly lowering their overall returns. In fact, they would’ve been better off not selling at all and soldiering through. But that’s thinking retrospectively. 

Remember: while getting out of your long-term positions might be appealing, it’s hardly the right thing to do.

Also Read: Hedging 101: Protect your investments from market surprises

Hedge your risks

There are a lot of asset classes that can hedge your stock risks. These could be long-term treasury bonds, government bonds, corporate debt, inverse ETFs, short options on individual stocks, etc.

Having a structured plan of action about how you’re going to hedge your stock risks is always beneficial during a bear market. While hedging does have some costs, obviously, you’d be doing yourself a favour by hedging well.

Dollar cost averaging

A long term investor’s best friend! Dollar cost averaging makes the bear market a blessing in disguise. Since economic downturns are hardly ever permanent and stock prices always bounce back up, this could be your chance to buy great stocks at a great price.

Through systematic investment plans where you invest a certain amount of money into the market every month, you could, over time, average out your buying average to prices much lower than average.

Several years down, when the same prices are skyrocketing, you could sell for a fortune.

SIPs are not the only way either. Simply identifying great bargains could also make buying averages come down. So, the bottom line is, keep your eyes peeled for good stocks selling for less than what they’re worth.

Holding cash in a bear market

Whenever a bear market is imminent, there’s a lot of talk about ‘holding your cash’. Basically, this is about keeping your money in the bank until the market hits its bottom, which is when everything gets dumped at once.

The only problem is the timing. Most people won’t get it right and end up losing more money. The best way is to construct a portfolio that’s good in the long term. Then, you won’t have to worry about a downturn every now and then because to you, it won’t matter in five years.

If you don’t need the cash, invest in constructing a long-term portfolio. It’s the best way to invest.


Investing in a bear market might sound counterintuitive but it’s one of the best things you can do. By buying low, rebalancing, and diversifying, you could make the best of a bad situation and come out on top when markets eventually recover.

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