Your Guide to Investing in a Bear Market

A bull market refers to a major upswing in the markets, while a bear market signals a pronounced downturn. Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are increases of 20% or more from the bear market low. Bear markets can be stressful for short-term and long-term investors alike, especially for those who are approaching retirement age. If you are losing sleep over market volatility, it may help to remember that the stock market is historically cyclical. Though we can’t predict what will happen in the future, historically all bear markets have eventually turned into bull markets. 

Bear Market Investing Strategies

Staying diversified, focusing on long-term financial goals and avoiding emotional investment behaviors are the keys to success during a downturn. Here’s what to do in a bear market to protect your portfolio.

Have a Diversified Portfolio

Diversification is key to navigating a volatile market with confidence; you’ll want to regularly review your portfolio to ensure you have a balanced, diversified portfolio. In addition to U.S. stocks and bonds, you may want to diversify into international stocks, which often don’t follow the same trajectory as domestic stocks. Short-term bonds and longer-term fixed income assets may also be worth considering during a bear market.

Consider Tax-Loss Harvesting

One way to capitalize on your losses within your nonqualified accounts during a bear market is by selling some investments at a loss to offset gains you’ve realized by selling other stocks at a profit. This is known as tax-loss harvesting, and it can reduce your taxable capital gains and offset up to $3,000 of your income. While investors can benefit from harvesting losses no matter the state of the market, downturns tend to offer more opportunities to purchase other securities at bargain prices. When the market recovers, those new investments may turn out to be a boon to your portfolio.

Reassess Your Risk 

If market volatility is causing you continued stress, it may be time to examine whether your portfolio is suited to your level of risk tolerance. A bear market is a good time to work with a financial advisor to determine your risk tolerance — how comfortable you are with risky investments based on your goals, timeline and preference. Once you know your tolerance, you can build a portfolio that takes you closer to your goals while hedging against unforeseen changes in the market. Traditionally risk-averse assets include:

• Treasury bills: U.S. government-issued bonds with a maturity ranging from a few days to 52 weeks. 
• Certificates of deposit: A savings product offered by banks that promises both safety of principal and periodic interest payments for a fixed time.
• Fixed annuities: A type of annuity contract that provides a guaranteed return on contributions you make as a lump sum or over a set period of time.

Invest With Confidence

One of the best ways to weather market upheavals is to have a professional on your side. Connect with a Farm Bureau financial advisor in your area to get started.