Where to Invest in a Bear Market

Where to Invest in a Bear Market?

6 min read

Do you know where to invest in a bear market? Bear markets can be scary to investors because of falling prices. A bear market doesn’t have to strike fear in the hearts of investors. Gold and silver stocks, as are physical assets, are very popular to invest in. Consumer staples stocks like $WMT and $TGT hold up nicely because people still need to shop. And who doesn’t like to open a good old can of Coke & Pepsi $KO, $PEP?

Where to Invest in a Bear Market
  1. Gold stocks: $GOLD, $AU
  2. Silver stocks: $PAAS
  3. Defense stocks like $LMT and $GD in times of war
  4. Consumer staples stocks like $WMT and $TGT
  5. Coca Cola & Pepsi: $KO and $PEP

Different sectors are strong. You can trade or invest in these sectors while the market is down. The market is a tug-of-war between the bulls and the bears. Hence, the market trades in cycles.

There will be bull markets as well as bear markets. The market is considered bearish when it goes down at least 20%. This affects stock prices, and they usually fall substantially.

Many people can wonder where to invest in a bear market when a bear market occurs. No one likes to look at their portfolio or brokerage account and see red. This is why many people will attempt to short stocks using their Robinhood account.

Make Money in Any Market

There are ways to make money in any market, provided you know where to look and how to trade. The first thing to do would be to avoid emotional selling.

Seeing a sharp decrease in profits can be a punch in the gut.

The first thing you want to do is sell to avoid even more loss as panic sell mode sets in and logical trading strategies are thrown out the window. It’s important to realize there are other strategies you can use. And some work better than others in specific environments.

Understandably, investors would want to sell and not risk even more loss. However, a little change can help grow a portfolio or brokerage account.

In this case, it may be using swing or day trading strategies. Options trading deals with speculation and hedging bets. There are conservative strategies and defensive strategies.

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Where to Invest in a Bear Market Conservatively

The most conservative strategy when deciding where to invest in a bear market is cashing everything out. Cash-out either before the bearish market hits or before the worst of it.

Months of decline are enough to make the average investor sell their investments and either leave the cash to reinvest in a bull market or switch to more secure sectors.

Bonds become highly attractive in bear markets. You’re not risking exposure in the market and still making a little money. It’s important to remember that bear markets test your emotions and patience.

Selling at a loss is the biggest risk of bear market investing. It’s also the easiest thing to do. Trading is emotional. To control your emotions, have a game plan.

What goes down must come up. The bulls will come back in, and the market will change directions. One of the ways to observe potential headwinds is using RSI Divergence.

Defensive Strategies

Do you know where to invest in a bear market? Anyone who’s a sports fan knows how important defense is. Take Superbowl 52, for example.

Tom Brady of the Patriots set records and had one of the best games in Super Bowl history, even throwing for 500 yards.

That wasn’t enough, though. Why? Their defense couldn’t stop the Eagles from saving their lives. It didn’t matter how great the offense played. The defense cost them the game.

With that in mind, a strong defensive investing strategy in a bear market can help your investments tread water and even create positive alpha for your trading account while the market drops. Some sectors, like food and beverage and apparel companies, are strong regardless of the market.

The reason for this is that everyone still needs them. You need to eat and wear clothes. Hence the constant inflow of revenue. These are strong defensive stocks.

Any company that sells basic consumer goods will always be a good bet. Everyone needs toothpaste or toilet paper. The continual flow of income keeps these stocks strong in any market. 

Options

Options trading is another tool to invest in a bear market. Options make money no matter the current market: bullish, bearish, or neutral.

You can day trade options as well as use other strategies for trading options. You can buy and sell naked puts and trade options spreads and earn a steady income as the market drops.

Options spread limit your risk. An options contract controls 100 shares of a stock. That makes it cheaper than trading shares; you can hedge your bets.

Use options to trade the patterns that form during a bear market. For instance, dark cloud cover patterns, head and shoulders patterns, or falling three methods patterns.

Shorting

You can short-sell if you don’t know where to invest in a bear market and rather do something more short-term. Short selling is believing the price of a stock will go down, so you borrow shares from your broker at a higher price.

Then, as the price falls, you cover your position, also known as buying the shares back at a cheaper price. The shares revert to your broker, and you get to keep the difference from when you sold to when you covered.

The Bottom Line

Knowing where to invest in a bear market can equip you to keep your investments safe. This type of market doesn’t mean that you have to lose money. Put together a strong defensive strategy to profit in any market. 

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