The U.S. spent the last decade flourishing in a bull market. But COVID-19 brought that to a screeching halt and has now situated us in a bear market.

While this has many investors clamoring to figure out whether to hold or sell, the news is not all bad. The current climate presents investors with potentially lucrative opportunities.

In this article, I’ll look at how to invest in a bear market and earn money even during downtime. 

What is a bear market?

How To Invest in A Bear Market - What is a bear market?

How To Invest in A Bear Market - What is a bear market?

A bear market occurs when markets or indexes, or individual securities decline in value by more than 20% over a prolonged time period. Securities may include publicly-traded stocks, bonds, or commodities.

A bear market is the exact opposite of a bull market, which describes the steady increase in the value of investments over a sustained time period. While bull markets are characterized by investor optimism, bear markets are typically associated with pessimism and investor hesitancy.

This leads to panic and increasing stock sell-offs, which in turn perpetuates an ongoing drop in market value. While the current bear market was emerging before the COVID-19 global pandemic, this unprecedented event is rapidly propelling dramatic drops in the market, the likes of which haven’t been recorded in decades.

Other reasons why investors might panic and sell, thereby triggering a bear market, include:

  • Unexpected or catastrophic events (like a pandemic, for example.)
  • Drops in corporate profits.
  • Correction from previous overvaluation.
  • The collapse of one industry impacting the overall market.
  • Contagious investor panic.

Bear markets have a tendency to perpetuate themselves: investors are scared off by the downward trend and sell, thereby contributing to the panic and decline in market value. Since part of the cycle is tied to psychological factors, predicting when a bear market will bottom out or turn around is tricky. However, past bear markets have been followed by bull markets. If you can overcome the fear and invest with courage and fortitude, the long term gains may be worth the short term uncertainty.

A bear market causes a downward influence on investors’ current assets. As securities drop in price, either suddenly or over a longer period of time, the value of your portfolio may decline dramatically.

While this sounds very bad, the bottom line is that if you don’t need money right away and aren’t planning on selling off your stock anytime soon, a bear market actually presents an opportunity to savvy investors willing to play the long game. Rather than being a big immediate loss, look at bear markets in terms of more distant gains.

Falling stock prices are great for value investors. When markets are depressed, this is the time to hold on to your shares and take a stake in more investments, thereby bringing the average cost basis of your overall holdings down and accelerating your financial recovery.

Dollar-cost averaging, for example, is an open window to the shut door of a bear market. By investing a steady amount regardless of fluctuations, you will wind up buying more when prices are low. And when the prices climb, you’ll buy less stock for the same amount of money but enjoy the climbing value of the low-cost stocks purchased in the bear market.

Should you invest in a bear market?

There are three options when facing a bear market:

Sell

This is not a wise move when markets are plummeting. Panic selling essentially locks in your losses – instead of riding the wave and waiting for the upswing, this move will likely make it impossible for you to recover your portfolio’s value once the tide turns. Unless you are desperate for cash, selling is not recommended in a bear market.

Stay

Not buying or selling is a tempting option. Fear reigns in a bear market, with investors panic selling and wary of investing in case values dip even further.

However, staying the course without buying stocks at a low point is also a loss. There is no value in being a wallflower in a devalued market. Rather, investing wisely can carry huge gains when the market rallies. It’s worth a bit of risk that your investments may still drop if, in the long run, they come back up.

Invest

About once every ten years, markets drop dramatically, triggering fear and panic selling. This, in turn, further depresses the market. Markets, however, are cyclical. After the shock of the 2008-09 recession subsided, the US enjoyed the longest-running bull market in its financial history.

While things seem bleak at the bottom of a bear market, investors who are bold in purchasing stocks at lower points benefit greatly when investing becomes more bullish.

Short-term prudence, in this case, undermines long-term profit. The current situation, therefore, presents a compelling opportunity if you have the means to invest today.

How to invest in a bear market

How To Invest In A Bear Market - How to invest in a bear market

How To Invest In A Bear Market - How to invest in a bear market

If you were able to anticipate the looming bear market, it would have been a good idea to minimize your risk and move some assets to more secure investments like mutual funds. You may have also increased liquidity and sold some well-performing stock near its top value.

Another approach to investing in a bear market is maintaining a dollar-cost averaging policy. As explained earlier in this article, this entails investing the same amount of money regularly regardless of how the markets are performing. This means that when markets are depressed, you will be buying more stock at a lower value, while in a bull market, your total investment will correspond to fewer stock purchases. Staying consistent through even the most disconcerting fluctuations can generate the best returns over time.

While selling or staying in a bear market is guaranteed to generate losses, figuring out what stocks to buy, when to buy them, and in what quantities can be intimidating. This is where investment management can give you a real boost. While it may seem like having investment advice is out of your reach, a new generation of online solutions can help take the complexity out of investing, even in a bear market.

Here are a couple of great platforms that can help you invest in the current bear market with low risk and no hassle:

You Invest by J.P. Morgan

If you want to get started slowly, You Invest by J.P. Morgan is worth consideration. With You Invest Trade, you can invest as little as $1, with no fees or minimum monthly balances. You’ll also have access to research tools to help you put your money in the right place.

Those who have at least $500 to invest may want to consider You Invest Portfolios. Through this feature, you’ll have your portfolio managed by J.P. Morgan’s team of experts, who will match you with stocks that best fit your own goals.

The easy-to-use interface is available on a computer or mobile device, which means you can monitor your investments from wherever you are. You can also take advantage of J.P. Morgan’s expertise to research stock performance to improve your results.

Disclosure – INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

M1 Finance

M1 Finance is a hybrid investment management service founded in 2015. Combining the benefits and simplicity of a robo-adviser and the personal agency and decision-making of a traditional brokerage caters to investors who have limited time to study the ins and outs of the market when deciding where to invest.

The platform uses a methodology called “pies & slices” that lets users choose from among a range of investment opportunities (slices of the pie) and also how much money you want to allocate (a percentage of your total pie). This combines both the simplicity of robo-advising and the independent control of traditional investing.

M1 delivers a very simple and user-friendly dashboard so that you can easily monitor your entire portfolio with the click of a button. You can fund your pie by moving more money into our account, check up on performance, rebalance your account, and change the slices of your pie as you see fit.

Betterment

Another great option for investors with limited time or understanding of the intricacies of the market is Betterment. If you’re a new investor who doesn’t want to keep your transactions totally self-directed, this is the platform for you. Betterment doesn’t have a requirement for a minimum investment, so you can deposit more funds over time to grow your portfolio while keeping within your means.

Founded in 2008, this low-cost investment management service was the first robo-adviser on the market. Offering automated, online investment advice and management, this service is not only suitable for novice investors. It is also perfect for busy investors who don’t have the time to manage their own portfolios. Plus, if you do want more control over your portfolio, you can always opt for a low annual advisory fee and keep handling your business – but with a bit of guidance. With cutting edge tech, Betterment’s innovation has propelled its success. The platform currently manages $16.4 billion in assets, while keeping management costs to users super low.

Betterment gives new investors the opportunity to leverage the current bear market and buy-in with limited funds. With low contributions and minimal risk, betterment investors benefit from a diversified portfolio and steady management even with just a few hundred dollars.

Summary

While the market wasn’t performing at its peak before the COVID-19 pandemic, it is definitely dropping rapidly now. With a 35% decline across many indexes, investors are panicking – but this is as much an opportunity as it is a blow.

By tapping into accessible and affordable online investment management platforms and jumping into the market at the low point of a bear market, you will reap great benefits when the market becomes bullish again.

Read more:

  • Why Stock Market Volatility May Be Good For You
  • How To Invest In Stocks – The Beginner’s Guide To The Stock Market