A bear market is a condition wherein the market experiences a steep decline for very long. This is typically when the prices of securities fall 20% or more from recent highs. This situation is sort of similar to what is happening all over the world right now amid the Coronavirus outbreak. In this, we are going to discuss some of the benefits of the bear market.
Benefits Of Bear Market
Many believe the bear market condition is no good. However, that is not entirely true. In this article, we are going to discuss some of the benefits of the bear market. Let’s get started.
It Is A Great Financial Opportunity
You need to understand that a bear market is an incredible financial gift. However, this condition only stands to serve those who are willing to continue to save and invest during this time. In a bear market, you will be able to invest at much lower prices. You can do this by adding both new savings and reinvesting dividends.
You need to be able to keep calm during this period and not sell. Instead, continue to buy stocks. It is believed that the likelihood of retiring early with a good amount increases with the number of bear markets that you go through during your years of saving. This is many because a huge slump in the performance of a stock is oftentimes followed by massive outperformance in the coming years. So, now is your time to grab potentially good shares at cheaper rates.
Helps Build Tolerance For Risk
A bear market condition helps build an immense amount of risk tolerance. This is mainly because there is absolutely no way to know in advance if your bet will work out. Being able to take on more risks, in the long run, translates to higher returns.
Sure, taking more risks all of a sudden can make you end up losing sleep for nights at stretch. But it will build resilience for sure. The bear market is the only way to discover the true mix of stocks and bonds you are comfortable living with.
Puts An End To Bull Market Folly
Going through a bear market truly puts an end to all kinds of bull market foolishness. When in a bull market you are investing in high stock prices it is very risky. But somehow because of our human nature we feel good about our investments. We tend to start believing that they will perform well in the long-run. We forget that stock markets can suffer as terribly as they are doing right now during the Coronavirus outbreak..
Bear Market in portfolio
Now when the bear market comes in place, it puts a huge dent in your portfolio in the short run. However, in the long run, it is going to do you much good. This is because you won’t fall for the same intense levels of optimism that comes from investing in a bull market condition.
This brings us to the end of our discussion on the benefits of the bear market and how you can leverage it in the long run. Now, let us know how do you prefer to invest during the bear market. Also, let us know some of your hacks and tips you use to navigate this particular type of market condition.
