Many people are considering investing in stocks during the bear market. Whether you didn’t have the funds previously or you simply can’t resist the relatively low prices right now, investing in stocks can be a good hedge against inflation.
“The definition of a bear market is when a market experiences prolonged price declines, typically falling 20% below their recent highs,” John L. Savarino, an investment advisor representative at Rooted Wealth Advisors, explained. “This makes for a good time to begin investing because you can look at it from a perspective that securities are at a discounted price. The market is cyclical, so if you begin investing when the market is setting record highs, the chances of the market declining eventually are very high.”
If you can manage the stress of watching your balances fall — on paper — until the market turns around, bear market investing can ultimately pay off when the market turns bullish again. And that will happen. “Patience, consistency, and discipline are necessary when it comes to investing,” Savarino said.
“Investing does not need to be complicated, but you do need to take the time to learn,” said Jay Zigmont, Ph.D, CHP and the founder of Childfree Wealth. He recommended reading as much as you can on the topic, including classics like “The Little Common Sense Book on Investing,” “The Simple Path to Wealth” and “A Random Walk Down Wall Street.”
Zigmont also echoed the advice of Warren Buffett to never invest in a business you cannot understand. He said, “Follow the general rule of only investing in things you understand. Understanding an investment includes knowing what you are investing in, how it impacts your financial plan and where to hold it.”
Get Expert Help
Don’t be afraid to ask for help navigating the investment landscape, experts agree. Zigmont suggested looking for an advice-only, fee-only fiduciary certified financial planner.
Catherine Valega, CFP, CAIA and wealth consultant at Green Bee Advisory, said, “The fee you pay for an advisor to help with your overall plan is more than recouped based on how we can help you invest for growth, protect your assets and reduce taxes.”
When you’re choosing a financial advisor, look for one that’s willing to help you grow your wealth in the long term, no matter how little you’re starting out with, advised Andrew Gold, a financial advisor and investment strategist at Prestige Wealth Management. “If they won’t work with you now, you probably don’t want to work with them later when you have the extra money,” he said.
Know and Accept Your Risk Tolerance
Before you put a dime into the stock market, you’ll want to understand your own risk tolerance.
Heather Winston, CFP and director of financial planning and advice at Principal Financial, explained, “Risk tolerance is the amount of risk one is willing to take, and it will remain reasonably static throughout your lifetime. That said, risk tolerance is only one component of investing — it’s also important to apply that tolerance to your timeline to meet your goals. Generally, the more time you have, the more risk you can assume because time can help smooth out the market’s gyrations. Conversely, if your time horizon is short, reducing risk can enable you to preserve what you have amassed.”
She noted that it’s normal to feel the pain of losses more significantly than the joy of gains. “This can cloud our decision making,” she said. “One of the most efficient risk-management strategies is simply sticking to your plan. You’re giving yourself time to ride out and recover from periods of volatility and bear market cycles.”
Use Dollar Cost Averaging To Minimize Risk
In a bear market, it might be tempting to try to find the bottom of your favorite stocks and buy at that low point. But you never know a stock’s low point until it begins to climb again. Instead, experts suggest using dollar cost averaging to reduce the risks of short-term volatility.
Gold recommended getting started with exchange-traded funds (ETFs), which are collections of similar stocks “to be able to trickle into the market in a broad basket of companies without committing to the success of one company alone.”
Focus on Building a Diversified Portfolio
Savarino echoed Gold’s sentiments about beginning with broad exposure to the market. “Index funds that track the total stock market are a really good place to start,” he said. “They are usually very low cost and simply track the performance of the stock market instead of taking on the risk of one single company at a time.”
As your portfolio expands, you may feel comfortable investing in larger companies that you like. “But low cost index funds are the best place to start, in my opinion,” Savarino said.
Make Sure Your Other Finances Are in Order
It’s important to remember that the stock market is a long game. “A beginner investor should be buying stock for long-term growth and accumulation,” Savarino said. That means before you begin investing, you’ll want to make sure you have adequate emergency savings in an easy-to-access account.
Experts traditionally recommended having at least six months salary set aside, but Valega said she recently upped that recommendation to 12 to 24 months of expenses saved, based on the possibility of a weak job market in the near future.
The cash you invest, Winston said, “should be money that you have left over after you have established an emergency fund for unforeseen expenses, and after you have reduced or eliminated unmanageable debt obligations.”
Choose a Platform
When you’re ready to get started, you’ll need to choose a platform. Savarino pointed out that most platforms today have no fees to open an account, buy, sell or trade assets. “I think the biggest thing a first-time investor needs to be aware of is what resources the platform offers, preferably at no cost,” he said.
He noted that larger platforms like TD Ameritrade provide a wealth of training resources, material, and personalized, one-on-one help. “Smaller platforms may not offer that,” he said.
Some first-time investors lean toward Robinhood because of the ability to buy fractionals, or a small percentage of an expensive stock. However, Gold warned, “I would steer clear of Robinhood because of the lack of transparency. Also, “during times of volatility, they sometimes shut down, which isn’t good,” he added.
Make Investing Automatic
Gold said that a bear market represents a good time to start investing since most stocks are “20% to 30% off their highs.” But first, you need to get into the habit of setting that money aside for investments.
“Focusing on the behaviors rather than the results will more often lead to success,” he said. “Both saving and investing are important when it comes to getting a head start on your financial future.”
Whether you’re starting to build out your portfolio or just aiming to save for a rainy day, make it automatic, Gold recommended. “Everyone has a transaction size that takes it from a no-brainer swipe of your card to something you’ll want to consider more carefully. That number could be $50, $100 or even $500. Decide what that number is and set up your bank account to have one-quarter of that come out each week when you get paid,” he said.
If you get paid bi-weekly, you’ll want to pull half the amount with each paycheck. “Don’t go into stressing about that money being pulled out of your account. If you can conquer the first couple of months of saving, you will have an easy time transitioning to be a savvy saver and investor in the future,” Gold said.
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About the Author
Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
