You may never have felt more uncertain managing your investments than you do right now.
Economies around the globe look poised to slide into recessions in the current climate, as a combination of rising interest rates, inflation, supply chain issues, and the war in Ukraine contribute to serious market volatility.
Alongside the headlines warning of a looming financial backslide, you may also have noticed the term “bear market” cropping up.
This development may have made you even more hesitant and insecure, especially if you are unsure of what this actually means.
So, find out what a bear market is, and how you can manage your money in these tricky conditions.
Falling asset prices cause many investors to “hibernate” like a bear
Simply put, a bear market is when stock prices fall, and investors become warier of parting with their money.
In a bear market, institutional and personal investors alike become pessimistic about the future of the economy as corporate profits fall, often taking stock prices with them.
A market is officially considered to be a full-fledged bear when it declines by 20% or more from a previous high.
According to CNBC, US markets officially entered a bear market on 13 June 2022, as the S&P 500, an index of the 500 largest companies in the US, fell by 21% from a previous high reached in January.
Managing your portfolio in a bear market
Understandably, you may be concerned about what a bear market means for you.
Whether you are actively investing for later life or intent on realising your gains so you can retire in the near future, a drop in the value of your investments can be alarming.
As a result, it can be useful to know that there are things you can do to stay steady in a constantly shifting market.
Here are three things to consider when managing your invested money in a bear market.
1. Keep calm and carry on
The first thing to remember is to keep calm and try not to panic. The overwhelming temptation is to abandon your long-term outlook on your investments and sell before they fall further in value.
Market uncertainty like this will already have been considered in your wider financial plan. So, for example, if you are already retired, you will hopefully have non-invested assets that you can draw from while your pension or other investments recover.
Equally, it is also important to remember that falls in value only become losses when you realise them.
Think of it this way. If you buy shares for £1,000 and they then fall in value to £800, you will have only lost £200 if you then sell those shares.
This drop in value may be temporary, and those shares could be worth £1,000 again in a year, or even more over a longer period.
So, if you can remain calm and resist the temptation to sell investments in this market, it is possible to avoid making a loss at all.
2. Find opportunities in the dip
Of course, rather than realising losses by liquidating investments, it may be possible to find opportunities while the market flounders.
As investors sell and prices fall, you may be able to buy investments at a cheaper price than you would ordinarily. By then holding these investments for a longer period, you may be able to generate even better returns on them than you would in ordinary circumstances.
Indeed, investing titan Warren Buffett is famed for having told investors of his firm to “be fearful when others are greedy, and greedy when others are fearful”.
However, it is important to remember that it is impossible to successfully “time” the market. You can never truly know that the market has bottomed out except in hindsight, and there is always the chance that your investments will fall even further in value.
Yet despite this, long-term data suggests that your investments would still generate a better return than holding your money in cash savings, even if the market were to fall further.
According to data collated from FE fundinfo, investing in UK equities on the night before the financial crisis in October 2007 would have seen an investor lose 46% in the following 17 months.
But, by January 2013, the value of their investment would have recovered and even surpassed the return offered by cash deposits. In fact, by the end of March 2022, that same investment would have returned a 104% gain, while cash would have produced a cumulative return of just 16%.
You may face additional risk trying to capitalise on market volatility like this. But, provided that you take a long-term outlook, you may be able to generate a return with some carefully selected investments.
3. Work with an expert
Perhaps the most sensible way to navigate these uncertain times is to work with a financial expert, such as with us at DBL Asset Management.
We have years of experience helping people just like you to manage their money, no matter what the market is doing.
Crucially, we know that markets will rise and fall over time. That is why we put mechanisms in place that protect clients and their money in times exactly like this, ensuring that their investments are always doing what they need them to do.
Speak to us
If you would like to find out how we manage your money during bear markets and periods of uncertainty, please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 for more information.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
