A Bear Market Can Benefit Investing Newbies – Here’s How
Just hearing the words “bear market” can turn your everyday investor into an insufferable worry wart. It’s understandable — risky buying in a time of low market confidence should be enough to dissuade even a seasoned player from entering the financial arena. However, some analysts argue that a bear market might be the perfect time for new investors to get into the game.
The average bear market — usually defined as a dip in securities of 20% or more from recent highs — can last 13 months from growth peak to bottom and rebound to breakeven at around 27 months, according to CBS News.
The S&P 500 entered a bear market on Monday. It is down more than 21% since its most recent peak in January and the benchmark index is at its lowest level since March 2021, per CNBC Select. This is the first time stocks entered a bear market since the beginning of the pandemic and it has financers concerned about what to do with their investments.
For new investors, this bear market might be the catalyst needed to buy stocks at a discount and practice “buying the dip” when everyone else is selling.
Investing is a long process and the bear market we are now experiencing is a good entry and learning point for those wanting to test the stock market for the first time and buy assets that may pay off down the road. For those willing to build their wealth over an extended time, the returns can be substantial, if done correctly.
According to CNBC, exchange-traded funds (ETFs) and mutual funds are recommended for the investment rookie. Both allow an individual to spread out their money across different asset categories, like stocks, bonds or real estate. Investing in a small number of companies can damage your portfolio should one of those companies take a hit.
But when diversified correctly, your portfolio can yield considerable returns, says Shon Anderson, chief wealth strategist at Anderson Financial Strategies.
“Each asset class performs differently in various economic and financial environments,” says Anderson. “So, when you have multiple asset classes, you should have more opportunities to have pieces of your portfolio make money in almost any environment,” reports CNBC Select.
Additionally, investing small, specific sums of money — practicing dollar-cost averaging — is a prudent move for beginner investors, states CNBC. Avoiding the risk of purchasing stocks in a lump sum means you can buy into a number of ventures at different market prices.
So, as The Financial Express notes, it’s good to be greedy during a bear market. Stocks lose an average of 36% during a bear market but pick up 114% on average during a bull market. History tells us that a bull market follows every bear market, and that bull markets last longer than bear markets, on average 991 and 289 days respectively.
Bear markets are temporary but the anxiety and uncertainty they cause can lead an investor to panic and sell and follow the lead of others as scared and confused as they are. It’s important not to get emotional and to remember that investing is a long-term enterprise. If you do your homework and buy responsibly, you’ll be able to ride out any market disruptions over time with little worry and, hopefully, big gains.
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