In this article, we’ll cover:

• Characteristics of bear markets
• How to invest in a bear market

Bear market characteristics

Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period. Bear markets can represent normal stock market fluctuations, or they can be a sign of a more serious downturn like an impending recession. It’s important to remember, though, that bear markets are normal. There have been 26 bear markets in the US since 1928, including the stock market crash of 1929 and the 2008 financial crisis. For the sake of comparison, there have been 27 bull markets in that time period. And bear markets don’t always signify prolonged economic slumps. History shows us there’s no way to predict the length of a bear market with 100% accuracy. Some have lasted as few as 33 days, while others carried on for more than 600 days. And even within a bear market that lasts a while, rallies can occur, in which there’s a sharp rebound in stock prices for a short time.  

Types of bear markets

There are three types of bear markets, each with unique characteristics. Some are longer-lasting, some trigger more violent downturns, and some tend to show quick recoveries. Understanding the type of bear market you’re in, whether event-driven, cyclical, or asset-bubble unwind, can help you make investment choices that align with your goals.

• Event-driven: This type of bear market occurs when external events outside the stock market, such as pandemics, wars, terrorist attacks, and natural disasters, create chaos and uncertainty in financial markets. These downturns tend to be violent but have a less severe total impact and fairly quick recoveries.
• Cyclical: Normal fluctuations in the business cycle drive cyclical bear markets. They often drive drawdowns similar in severity to event-driven markets but are much longer-lived. It’s worth noting that such ups and downs in the economy overall are considered a regular part of how business operates.
• Asset-bubble unwinds: These cyclical fluctuations occur when certain assets that have quickly and dramatically risen in value suddenly decline sharply, leading to broad disruption in financial markets. Asset-bubble unwinds are specific to certain situations, like an overvaluation of certain sectors or assets like real estate, but they’ve lasted the longest and seen the largest total decline in stock prices.

How to invest in a bear market: 6 strategies

There’s always risk, regardless of whether you’re investing in a bull market or a bear market. But the right investment strategy can help you persevere when the market is down. The first thing to consider when investing in a bear market is your risk tolerance and your financial goals. Longer time horizons can generally withstand some volatility, but if your goals are shorter-term you may want to think about moving some assets into less risky investments. However, resist the urge to pull out of the market and focus on these strategies instead.

1. Don’t sell unless you absolutely have to

Unless a truly pressing need arises that your emergency fund can’t cover, keep your investments in the market. While seeing the value of your portfolio fall during a bear market can be worrying, uncertain markets call for a long-term investor’s mindset. Remember that losses during this time are likely to be balanced by gains when the economy recovers, based on historical market performance. Gains may take more time in a bear market, and holding stocks for the long term is likelier to help you realize those gains than selling at a loss.

2. Take advantage of dollar-cost averaging

Instead of attempting to time the market, take advantage of dollar-cost averaging (DCA). This investment strategy allows investors to buy assets over time by investing a set amount of money on a regular basis, regardless of stock market volatility. Because you’re buying securities regularly over a long period of time, you’ll automatically buy fewer shares when prices are high in a bull market and more when the prices are low in a bear market. This allows you to spread out your investment purchases over time so the average cost per share is less impacted by market swings. Automated investing or setting up recurring transfers from your checking account can make DCA easier to stick within a bear market. 

3. Diversify your portfolio

A diversified portfolio can be an important defense against market volatility and a helpful guide when deciding what to invest in during a recession. Diversifying means splitting your portfolio across different asset classes and industries that behave differently in the market, which reduces your vulnerability to the risks tied to any single asset. Stocks, bonds, exchange-traded funds (ETFs), cash, and other asset classes can all play a role in a well-diversified portfolio. If you invest in stocks, you can apply diversification to your investment choices by putting money into multiple different sectors. For instance, you might want to hold shares in tech companies, energy companies, and consumer-goods companies so that if prices drop dramatically in one of those sectors, any losses could be balanced by better performance in the other sectors. 

4. Invest in sectors that perform well during bear markets

No matter what the market brings, certain sectors tend to remain in consistent demand. In a bear market, defensive stocks from the utility, healthcare, and consumer staples sectors may continue to perform well because they cater to people’s basic needs, such as electricity, medical care, and groceries. Defensive stocks may lower your overall risk as part of a diversified portfolio, especially in times of economic downturn.

5. Focus on the long term

When you’ve got investments in a bear market, it’s easy to get caught up in the short-term view of what’s happening with your money in the present moment. But changing your investment plans with every shift of the market creates unneeded stress and puts you in the position of trying to guess what the market will do at any given time. Instead, focus on long-term goals like retirement savings. The bear market will likely correct itself in time, and you can eventually see the bull market rewards that come with patience.

Thoughtful strategies for a down market

Investing wisely in a bear market is possible, and a thoughtful investment strategy like the Stash Way can help: invest regularly, diversify your portfolio, and invest for the long term. The Stash Way can be your strategic investment guide, no matter what the market brings. 

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So, is now a good time to invest? The answer is that it certainly can be, as long as you consider the following:

• Your financial goals are long-term. The market moves in cycles, and history has shown us that it’s very likely to recover in time. If your retirement savings goals are years into the future, you’re more likely to cash in on future market gains.
• You have idle cash at the end of the month. Idle cash is money that’s not needed for expenses or emergency savings, and isn’t earning interest that outpaces inflation. Those funds could be invested for potential returns in the future. 
• You’ve built up a healthy emergency fund. Having a cash reserve on hand to keep you afloat during a financial emergency can prevent you from incurring further debt. If you have a comfortable cushion, you may feel confident putting money into the market.

In this article, we’ll cover:

• What’s going on in the stock market
• Reasons to invest in the here and now
• An investing strategy for any market

The current state of the market

Several factors are contributing to the state of the economy in 2023. The labor market is tight, pushing wages higher and, in turn, partially driving inflation. As interest rates increase, the likelihood of a recession rises too. S&P 500 companies have recently reported a 4.8% year-over-year decline in earnings, and it’s expected to drop even more this year. While defensive stocks, like utilities, consumer goods, and healthcare, continue to show stable earnings, experts predict the stock market overall will remain volatile throughout 2023.

Reasons why investing now is a good idea

Despite the relative volatility of the market, investing isn’t necessarily a bad idea. In fact, some experts suggest that in times like these, it can be beneficial to develop a long-term investment strategy, taking advantage of lower stock prices and holding out for returns in the future. As investment always comes with a certain amount of risk, it’s essential to do your homework before you dive in. 

It’s about time in the market, not timing the market

Nobody can predict the market. While there are many indicators you can watch to identify trends, it’s impossible to foresee what will happen today, tomorrow, or next month. So don’t try to time the market by guessing which stocks will rise or fall in value. Market fluctuations are natural, and the only way to combat them is by staying in the market. That’s why time in the market, aka keeping your money invested long-term, is likely to be more successful than timing the market. For example, from October 2007 to March 2009, the S&P 500 fell more than 46%. But a bull market took over in 2009, allowing the S&P to climb more than 250% by 2019. Investors who stayed in the market eventually saw the returns they desired.

There’s potential for high investment returns in the long term

A long-term approach to investing can allow for compounding growth over time. And that can set you up for success with large financial goals like retirement savings. Generally, the longer term the investment, the higher the returns. You might consider investing in stocks and funds that have a history of performing well even in a volatile market. That said, investors interested in meeting short- to mid-term financial goals do have some lower-risk options. Bonds, Treasury bills, or Real Estate Investment Trusts, might be the right conservative shorter-term investment options with less volatility than stocks and funds. Banking products with higher interest rates, like CDs or high-yield savings accounts, might also be of interest if you want your money to grow in the short term. 

3 Tips for investing regardless of the market

Invest regularly. Diversify your portfolio. Focus on the long term. These three tips can serve you well regardless of what’s happening with the market. It’s a simple investment strategy that will help you prioritize long-term financial health and cut out the noise of short-term stock market volatility.

1. Invest regularly

Leverage dollar cost averaging (DCA) to your advantage. Rather than trying to time the market with a lump sum investment, build wealth over the long term by investing a set amount of money on a regular basis. DCA can help reduce the risk of volatility and relieve some of the stress that comes along with investing. It also helps you diversify the average cost of shares, so you can continue to invest regardless of stock prices. Many beginning investors find it helpful to budget a certain amount of money to put into their brokerage account each month

2. Diversify your portfolio

Diversifying is one of the most critical things you can do to safeguard your portfolio from market downturns or financial crises. Diversification means spreading your investment portfolio across different types of assets to reduce overall risk. Those different investments may include stocks, bonds, ETFs, mutual funds, real estate, or even global assets that go beyond the US stock market. Within each of those asset classes, you can find even more ways to diversify; for example, if you invest in stocks, you may wish to spread your money among several different sectors. Remember to ensure that your diversified portfolio balances risk versus reward according to your risk tolerance, time horizon, and financial goals.

3. Invest for the long term

Uncertain markets call for a long-term investor’s mindset. Gains will take time, so focus on holding stocks for the long term. A few ways you can keep your eye on the future instead of stressing about the current ups and downs include:

• Focus on retirement savings and other far-off financial goals that are 10 or more years in the future
• Create a strategy based on a diversified portfolio and stick to it; changing your plans with every shift in the market adds stress without necessarily reducing risk
• Don’t fixate on economic news if it causes you anxiety. Stay informed about your investments, but don’t allow every market dip to induce panic
• Set up automated investing so that you can stick to your investing plans and manage your portfolio passively 

To invest or not to invest? Try the Stash Way

Even if you’re just learning how to invest in stocks, funds, and other financial products, the ups and downs of today’s stock market don’t have to be a deterrent. All you need is awareness of your risk tolerance and a thoughtful investment strategy like the Stash Way: invest regularly, diversify your portfolio, and invest for the long term. Market fluctuations are inevitable, but Stash can help you navigate your way toward future financial success.

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In this article, we’ll cover:

• The origin of the terms
• What a bull market means
• What a bear market means
• Characteristics of bull and bear markets
• How to invest in each market phase

The history of bull and bear markets

Etymologists, financial wonks, and everyday investors have all wondered why bulls and bears became associated with the stock market. It’s likely that the jargon originated in the 1700s or 1800s. The bear may have come first, in reference to speculative investors attempting to sell bearskins. Bull was likely chosen later, as a fitting alter ego to the bear. For whatever reason, the animal imagery caught on, and we’re still using it today to indicate the conditions of the stock market and economy in different phases of expansion and contraction. The concept and definition of bull and bear markets have evolved significantly over time, however.

What is a bull market?

According to the US Securities and Exchange Commission (SEC), a bull market is defined as a time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period. When stocks are rising during a bull market, it usually indicates a time of economic expansion, that the economy is strong and investors are confident. Since 1932, the average length of a bull market has remained just under four years.

The longest bull markets in history

Since 1926, the S&P 500 Index has recorded twelve bull markets, during which the value of stocks in the index rose anywhere from 48% to 417%. The longest-running bull market in US history came to an end in March 2020 thanks to the COVID-19 pandemic. The three longest bull markets in US history were:

• Post-war boom: began in June 1949, lasted 86 months, and saw increases of 266%
• 1990s boom: began in October 1990, lasted 113 months, and saw increases of 417%
• Great Recession recovery: began in March 2009, lasted 132 months, and saw increases of 330+% 

What is a bear market?

In contrast to the bull market, the SEC defines a bear market as a time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period. 

Since WWII, bear markets have taken 13 months on average to go from peak to trough and 27 months to get back to breakeven. The longest bear market in history ended in March 1942, lasted 61 months, and cut the S&P 500 Index by 61%. By and large, investors look for a 20% gain from a low point and steady gains over at least a six-month period to understand when a bear market has ended.

Types of bear markets

Not all bear markets are created equally. It’s helpful for investors to know what type of bear market they’re in before trading securities. A bear market may be an indicator of normal fluctuations in the stock market, or it may signal that the economy is headed for a more serious downturn. The three types of bear markets include event-driven, cyclical, and asset-bubble unwinds.

• Event-driven bear markets: Event-driven bear markets occur when world events, like pandemics, wars, terrorist attacks, and natural disasters create chaos and uncertainty in financial markets. While these market downturns may be sudden and large, they usually have a less severe total impact and quick recoveries.
• Cyclical bear markets: Cyclical bear markets are driven by normal fluctuations in the business cycle. The market downturns are usually as severe as event-driven bear markets, but they tend to last longer.
• Asset-bubble unwinds: Asset-bubble unwinds occur when cyclical fluctuations in the market trigger asset bubbles to burst, leading to broad disruption in financial markets. The duration of these types of bear markets is specific to each situation, but historically they have lasted the longest and seen the largest total decline in stock values.

The key differences between bear and bull markets

How to invest in bull and bear market phases

As an investor, you’ll experience both bullish and bearish markets throughout the years. When stocks are rising during a bull market, it usually means that the economy is strong, investors are confident, and the demand for securities tends to go up. As a result, major markets typically trend upward. In contrast, during a bear market, investors are generally pessimistic about the economy and may be looking to sell their investments. 

Whether it’s better to buy stocks in a bull vs. bear market isn’t a simple question; every market is unique, as are each individual’s circumstances. Investing in any kind of market comes with risk, including the risk that you could lose money, so it’s important to understand best practices for investing in both bull and bear market phases. 

Investing in a bull market

When stock prices are rising and optimism abounds, how do you decide where to invest your money? Many investors are willing to take on more risk in a bull market, but you may want to think carefully about your personal risk profile and have a long-term strategy in mind.

• Invest in cyclical stocks. Cyclical stock prices are affected by macroeconomic or systematic changes in the overall economy, so they’re known for following the cycle of expansion, peak, recession, and recovery. They tend to do well during a booming economy.
• Invest in exchange-traded funds (ETFs), index, and mutual funds. These funds tend to replicate the movements of the index they follow, so if the index is doing well, your investments should be doing well, too. 
• Learn about dollar-cost averaging. Investing a fixed amount each month can be a smart move in bull-ish times. When the price of the security is high, you’ll buy a lower number of shares, and when it’s low, you’ll buy a higher number of shares. 
• Hold onto your investments. When the value of your investments goes up, the urge to sell at a profit may strike. However, if you’re following a buy-and-hold strategy to build wealth over the long term, you may want to think twice before trading your securities.

Investing in a bear market

During times of pessimism and low confidence, emotions can run high for investors. Some people are tempted to sell all their securities to avoid losing money or, conversely, buy up what they can at a lower price. But going to extremes is usually not the answer. Instead, refine your approach to investing during a bear market by using the following strategies: 

• Don’t sell unless you absolutely have to. When the value of your portfolio drops in a bear market, chances are that your invested money will return to its previous value once the market has subsided. It may take a few years, so patience is key.
• Take advantage of dollar-cost averaging. This is just as important in a bearish market as it is in a bullish one because it allows you to purchase more shares when prices are low without increasing the amount of money you invest on your regular schedule. 
• Automate your investments. Robo-advisors are digital financial advisors that automatically select and manage your portfolio based on your investment preferences. The algorithm takes care of trading and rebalancing your portfolio for you, taking the emotion out of investing during stressful times.
• Diversify your portfolio. Holding a wide range of investment types reduces risk because a large drop in an individual stock is balanced by gains in other securities. Diversity becomes especially important in a bear market when stock prices fall; your investments in less volatile securities like bonds may help cushion the blow.
• Invest in sectors that perform well during bear markets: Consumer staples, healthcare, utilities, and other essential sectors tend to do better during bear markets since they are in demand regardless of the condition of the stock market. These are known as defensive stocks.
• Focus on the big picture. Remember that the market will eventually turn around. Investing with the long-term in mind and avoiding knee-jerk emotional reactions can help you weather a bear market. 

Are we in a bull or bear market in 2022?

As of June 2022, the S&P 500 was considered by investing experts to be in a bear market, with the value of the stocks it includes having fallen 22.2% below its record high set earlier in the year. While the duration of a bear market is difficult to predict, the S&P 500 has regained and exceeded its value after every bear market in the past. Many experts recommend that investors hold onto their stocks and ride out the market dip. 

Rolling with the bears and bulls of the stock market 

Whether the market is charging forward or retreating for a little nap, investors can learn to navigate the ups and downs. Investment of any kind comes with risk, especially as the economy fluctuates. The Stash Way is an investing philosophy that focuses on regular investing with a diversified portfolio and using a buy-and-hold strategy that focuses on building wealth over the long term, all of which can help you navigate the inevitable ups and downs of bull and bear markets.

The post Bull vs. Bear Markets: What’s the Difference? appeared first on Stash Learn.

 As businesses such as restaurants, salons, car dealerships, and more have shut their doors to stop the spread of Covid-19, nearly 3.3 million Americans have lost their jobs (temporarily or not). Here are some tips on how to budget when the economy is volatile: 

Build your budget

If you don’t have a budget, now is the time to create one. You may not be able to control the news, but you can and should control your spending. And a budget can act as a financial blueprint, guiding your everyday life and spending habits, helping you stay on track with saving and investing goals.

There are various different budgets you can use including the 50-30-20 budget (a percentage-based budget) or the zero-sum budget. No matter which one you choose, start by figuring out how much money you have coming in each month. Then determine how much you spend on essential or fixed expenses, how much you spend on variable or nonessential expenses, and how much you want to save. 

As you’re taking into consideration a volatile economy, you may want to allocate more of your monthly budget to savings and cut down on nonessential expenses to prepare for how your circumstances may or may not change. 

Cut the nonessentials

Now is the time to cut down on nonessential spending, which includes spending that you do on activities or items that you want but don’t necessarily need such as Netflix, Hulu, a spiral vegetable shredder, or a workout bike you might never use.

“Work out how different crisis financial situations would play out,” says Jason Patel, founder of career prep company Transizion, based in Washington, D.C., says. “Determine what you would need if you brought in only 50% of what you currently bring home. Then try 75% and so on.” In the current economic situation, Patel suggests cutting anything that doesn’t relate to health or medicine, rent, groceries, and getting to your job.

Of course, If you’re going to be stuck inside for days at a time, you still want to leave room for some non-essential expenses, like ordering takeout or renting a movie. But maybe cut down on extraneous online shopping like buying new clothes or stuff for your home. 

Access your rainy day fund

Don’t be afraid to dip into your rainy day fund or emergency fund if you experience some bumps in your financial life. That’s what these funds are for. If you don’t have one, think about creating one and start contributing to them regularly. 

Remember that a rainy day fund should contain at least $500 to $1000 for you to draw on to pay down credit card debt or your rent if you have a sudden change in income. Your emergency fund should contain enough money to carry you through three to six months of all your expenses, should something such as a layoff or illness happen.

Be careful with credit cards

It’s too easy to rely on credit cards if you have a sudden drop or loss in income, but that’s probably not a good idea. At some point, you’ll need to pay off that debt. “You might find yourself wanting to lean on credit cards to get you through a financially tight period,” says Nathan Grant, a senior analyst for Credit Card Insider, Syracuse, New York. “But avoid using them for purchases you can’t pay off within a month so you don’t affect your credit and waste unnecessary money on interest fees.” If you don’t have the cash to pay off the debt, don’t spend it in the first place. 

Grant also recommends staying on top of any existing debt that you might already have so that you don’t let it get out of control. He suggests making sure you’re at least paying the minimum amounts due on any credit cards or loans to prevent damage to your credit. Consider attacking your debt with the avalanche, or the snowball method. Having debt can make matters worse if you hit a rough patch.

Budgeting is just the start

The best way to weather the storm is to prepare your own finances and stay the course. 

A budget can help show you the way by providing a financial structure.

Think of your financial plan as a building block that can also include longer-term goals such as investing and saving for retirement. 

As you manage your money, consider the Stash Way, which encourages you to think and prepare for the long-term, while investing small amounts regularly in a diversified portfolio.

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