Bear markets – Bear them with a grin

Don’t panic. Instead, develop a plan and stick to it – hope is not a good strategy

When it comes to managing your investments, it is never wise to play blind. In order to achieve your goals, you must put together a financial plan that is well aligned with your risk-return profile. However, sometimes even the best laid plans can get derailed due to the external environment or change in personal circumstances. This is especially true when it comes to bear market investments. With prices falling and most investments generating negative returns, it is important to have an investment plan that can help you weather the bear market storm. Doing nothing and just watching your investments slide in the hope that markets will eventually recover is never a good strategy. Instead, evaluate your portfolio, assess your risk taking ability and look for compelling investment opportunities.

Don’t follow the herd. Instead, ignore the noise and rebalance as per your asset allocation strategy

In bear markets, there is generally widespread chaos and panic. Investors often tend to take irrational decisions in the midst of all the fear. However, the last thing that you should do is follow the herd. Don’t sell all your investments just because everybody is selling. Instead, review your portfolio and assess whether you need to rebalance to adhere to your existing asset allocation strategy or maybe even tweak your asset allocation strategy to reflect the change in the risk environment. Always remember that your return requirements and risk profile are unique. Ideally, your asset allocation strategy should reflect this. Thus, instead of following the herd, stick to your unique asset allocation strategy. From that perspective, investors should consider investing in mutual funds as these are an ideal investment vehicle for those looking to effectively diversify their portfolios.

Don’t time the market. Instead, be disciplined and follow a systematic investment strategy

The best investors are those who buy at the bottom and sell at the tops. Unfortunately, these investors do not exist. It is next to impossible to time the markets. Thus, don’t go deploying all your funds just because you believe that the market has hit rock bottom. In a bear market scenario, prices can keep falling for extended periods of time and even give false hopes that a recovery is around the corner. Trying to time the market can be harmful to your portfolio. Instead, follow a disciplined and systematic approach to portfolio. By investing in a disciplined manner and deploying funds at various market levels in adherence to a pre-determined strategy, you can take advantage of rupee cost averaging and generate good returns over the long-term. Systematic investment plans can be an ideal solution for investors looking to reap the long-term benefits of equities.

Investing is as much an art as it is a science. Bear market investing can often skew investor behaviour and tip the scales towards irrational and sub-optimal investment decisions. Which is why it is all the more important to know how to invest in bear markets. In order to create an optimal portfolio, it is imperative that investors strike a balance between the art and science of investing.