Tuesday, March 17, 2009

5 tips to survive a bear market

In a market like this, there seems to be little hope. The share market is falling daily and people are seeing their wealth portfolio shrinking.

So what should you do? Perhaps selling every stocks and put your money in stocks. That would be a great mistake. For as you already know the return of the stock market outperform the return of any investment instruments. In fact the best advice that i can give you is to sit tight and ride the recession. I know it is a little bit difficult so i have compiled 5 advices that you can follow to make sure you do not go nuts before the recession ends.

1. Do not borrow money to invest

The stock market will surely go up one day. However if you borrow money to invest, chances are that in the mean time you will have to pay the loan. Or if you will pay it at a later time, then pay back time may come and the fantastic return that come with the rise of the stock market may not have started. So you will be forced to liquidate assets on the cheap. As a matter of principle I do not advise my readers to borrow to invest.Even when you will become more knowledgeable in the market.

2. Invest only money that you do not need

As a second principle i do not advise people to invest money that they will need in the next few years. While the stock market will surely rise in the long run it may actually fall in the short term and as a result when you will need the money you will have to sell a lot of depressed assets. It is like shooting yourself in the foot.

3. Stick to your plan

If you have a plan that states how much money you should invest monthly, or what is your allocation then stick to it. On the contrary now is the time to invest more than your plan states not less. Buy assets on the cheap and do not under any circumstances change your allocation or get out of stocks.

4, Do not watch the news

Do not watch the news. Remember these people like it when there is blood on the street. So if you have a nice plan and you are sticking to it then do not react to the news. Remember a lot of these tv people do not have a clue about what they are saying.

5. Rebalance your portfolio

Some shares in your portfolio will lose value more that others. Use extra money that you have to rebalance the portfolio every now and then as stated in your plan. Do not panic and sell stocks that are falling in value but which are sound businesses and who are just being affected by the selling panic.

So guys sit tight and hopefully after this bear market ends you will come out of it a little bit richer.

Good luck.

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1 comment:

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