How to navigate through bear and bull markets?
Investing in the stock market could be a better option for your short-term and long-term investment goals. With recent advertisements and jingles being made on the benefits of mutual fund investments and a 2019 Livemint article reporting the increasing popularity of this avenue, it is only common for you to consider this option to grow your wealth.
While learning about the stock market, you will come across various terms – with a bear market and bull market being a couple of commonly used ones.
What is a bull market?
In a bull market, the market is on a rise for stocks, bonds, and other securities. There is increased investor confidence in the market and share prices soar. A low unemployment rate and a thriving economy accompany a bull market. It is a buyer’s market, where the purchaser has more control over the seller during price negotiations.
What is a bear market?
A bear market is the exact opposite of a bull market. A market is considered bearish in nature if it is moving down extensively. During this recession, investors start getting worried and withdraw money from low-performing stocks. While bullish nature is characterized by employment and economic growth, bearish nature is characterized by unemployment and economic slowdown. Hence, it is called a seller’s market.
What causes a bull market?
A strong economy and high employment rates fuel a bull market. You can easily identify this by simply researching the prevailing stock market conditions.
What causes a bear market?
A bear market can be identified by a decline in every other economic aspect. Any decline, whether it’s in share prices, in the debt market, or unemployment, can be a warning sign of a bear market.
How to make profits during bearish conditions?
While bear markets might look scary, it is always wise to remain patient as the changing of the market is an ongoing process. If you are wondering what investment strategy during a recession should be adopted, here are a few tips to still earn profits:
- Invest in a short position: Buy during the bull market and sell during the bear market; cut your losses and make profits
- Hunt for reliable stocks: This will work as a smart asset allocation during the recession
- Diversify your portfolio: This is the best advice for all seasons—never keep all your eggs in one basket. Whether it is shares, mutual funds, bonds, or other asset classes, diversify your portfolio
Taking advantage of prevailing market conditions
The stock market today experiences both bull and bear conditions. Understanding the market direction is essential to survive during a crisis. Understandably, new investors might feel overwhelmed tracking such periods.
Thus, it is prudent to reach out to a financial advisor who can help you navigate through different market conditions by recommending stocks to buy and a recession investment strategy to adopt that is in line with your risk appetite and investment goals.