Investing in the stock market is all about delayed gratification. Instead of spending money, anyone could acquire stakes in companies in the hope that the majority of these companies would grow to be more valuable in the future than they are today. The goal is very simple. But people make mistakes all the time. Especially during a bear market.
During a bear market, falling asset prices can lead to some great deals. But when the broader indices drop 15%-30% and continue to slide, it will be very difficult not to lose money in the short term. While we all wish we could crash stock at the exact time it goes down, the truth is that this is very difficult. And you should ignore anyone who claims to be easy.
Instead, the goal during a bear market should be to invest money by building positions in companies you believe in – even if those positions decline in the short term. Here’s a look at the risks of trying hard to make money in a bear market, and a better approach you can take to get rich in the long run.
The Pitfalls of Trying to Make Money Fast in a Bear Market
Believe it or not, trying to make money in a bear market is usually one of the best ways to lose money. Trading in and out of stocks, short selling, using hedging strategies, and buying into sectors or companies you don’t understand are all examples of what some people are trying to do in a bear market. There is no denying that shorten the range Standard & Poor’s 500 It would have been a great business so far in 2022. That’s just a fact. But is it a big investment or a use of capital? Mostly not.
Nobody knows how far the market could go down. But we know that betting on the US economy has been a losing strategy in the long run. By shorting the S&P500, or, say, selling all of your stocks and investing only in gold and oil and gas stocks, you’re effectively betting that the overall stock market’s long-term return will be worse than gold, oil, and gas. you may get. But it is unlikely.
Now, this does not mean that an investor should not own some stocks of gold or oil and gas. In fact, there are few oil and gas stocks like chevron or ConocoPhillips In particular they stand out as good buys now. or even a utility like NextEra Energy (ne 0.63%) Associated with oil, gas and renewable energy. Instead, the point is that it is usually a mistake to scramble to find what works in a particular bear market and then change your investment strategy according to that trend.
It is worth noting that the same also applies to a bull market. Investors who switched from value stocks and oil and gas to growth and renewable energy in 2020 and 2021 have lost gains in the value of stocks and the energy sector this year. By switching to growth stocks at their peak, the investor would have largely missed out on the sustained gains that growth stocks enjoyed from 2009 to 2021 and instead incurred losses in 2022. Likewise, the three worst stock market segments in 2020 – – Which was energy, finance and real estate – it ended up being the top three sectors in 2021. That’s all it says that being drawn to a smarter strategy or brighter stocks is usually a great way to lose money. Instead, the investor should find companies with attractive funding and long-term growth prospects and invest in those companies regardless of whether they are pro or not in a given year.
The most profitable approach
The best and simplest strategy in a bear market is to find companies with brands that you understand and are interested in owning for the long term and invest in those companies even if it means more downsides. Although it can be tempting to go and find a company that is significantly compressed from its highs that could increase five or tenfold over the next few years, a much easier strategy is to simply stick to the industry leaders that are dropping in heights but also have plenty of long-term growth.
One of the reasons why so many investors miss out on excellent buying opportunities in a bear market is that they are afraid of losing money. And if you’re afraid of losing money, it will be hard to hit the buy button when stocks seem to be going down.
The sooner an investor becomes comfortable with volatility, the sooner he can begin to build a portfolio that will thank him in the future. Remember that investing in the stock market is all about delayed gratification. Ultimately, it won’t matter what your wallet is worth tomorrow, the end of the year, or even next year. Instead, all that really matters is that you’re building lasting wealth by letting the power of compound interest work its magic. It comes as a surprise to most people to learn that $10,000 invested each year for 50 years at a 10% annual return (excluding taxes) will turn in – wait – $11.64 million (although total deposits during that time frame are just $500,000). The price of accepting those returns is patience, the ability not to lose your temper during a downturn, and the discipline to continue saving money.
Focus on long-term wealth
Making money or beating the market every year is not an objective for investors. You don’t have to try to completely rethink your strategy because the market is down. And you don’t have to make a great decision to get incredibly rich all at once. Instead, you just have to consistently make decent decisions. By focusing on the big picture, the investor has a better chance of thinking clearly and making choices that prioritize his or her long-term financial health.