What You Need To Know About Bear Markets
Your risk appetite determines how much you gain or lose when investing. The higher the risk the greater the reward. If you have a well-diversified portfolio of stocks and bonds then you should have steady and average returns. Trying to predict a bear or bull market is purely up to speculation. There are a lot of analysts predicting the end of the current seven year bull market. The first way to get ready is to take some gains and allocate them to some bonds.
Learn why you need to be invested into bonds for a well-diversified portfolio.
Ramsey expects a “garden variety” downdraft of around 27.5% (see chart). After a six-year rally in which the market has soared more than 200%, that’s not catastrophic. Also, it’s psychologically difficult to buy on the dips in a megabear that might drag on for years. But a run-of-the-mill bear market can be viewed as “an opportunity,” says Kate Warne, investment strategist at Edward Jones.
Warne’s advice: Plan to rebalance your portfolio to your target stock allocation in the next bear. Get ready to do so once your mix changes by around five percentage points. A 70% stock/30% bond portfolio will hit that point as equity losses approach 20%. Selling bonds to replenish your equities will set you up for the next bull
If you had invested in 2009 after The Great Recession you would have doubled your money in a little over six years. This bull market can still gain another 20% before it ends. When investing sitting on the sidelines is not a way you are going to generate more income. Buying up some European stocks while they are still down is a great way to get ahead right now. European governments have just started Bernake like quantitative easing to spark the stagnant economy. Maybe it’s another opportunity to double you money?
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.