Five tips for surviving a bear market mauling
The FTSE 100 index of largest UK stocks has been one of the world’s ‘best’ performing markets this year, down only 2% and benefiting from its focus on outperforming commodity and defensive sectors.
By contrast, the more domestic-focused FTSE 250 of smaller and mid cap UK stocks has suffered the full brunt of the UK ‘stagflation’ economics of 9% inflation and borderline recession.
This has seen it plunge 19.8% from its 4 January high (closed at 19,160.21 on 13 June), dangerously flirting with the -20% bear market territory the US S&P 500 entered into last night. The S&P 500 was down 21.8% from its 3 January high to yesterday’s close at 3,749.6.
For any investors thinking about their options and how best to ride out any bear markets they’re currently invested in, here are five tips:
1) Bull markets are built on the shoulders of bear markets
Economic slowdowns will eventually cut inflation and create the conditions for more sustainable GDP and earnings growth in the future.
So, while we’re seeing lower stock market valuations now, this sets us up for increases in the future. This is by no means a comfortable ride, so remind yourself to focus on the long-term.
2) You need to be in it to win it
The average S&P 500 bull market is 178% and lasts 60 months. This is over four times larger and longer than the average bear market drops of -38% over 19 months.
So, history tells us that the markets reward investors who dig their heels in and ride out the tough times.
3) Keep up a regular investment plan
Keeping up a regular investment plan will help you to lower your risk and avoid losing out due to poor timing. A common approach used by investors is ‘dollar-cost-averaging’.
An investor adopting this principle would divide an investment into smaller sums that are invested separately at regular predetermined intervals until the full amount of capital is exhausted. This allows them to manage sell-off risks, get a better average entry price, and be invested for the upturn that is set to come.
4) Look for opportunities across different markets and assets
Despite the sharp sell-off, there are always places to hide. Commodities are up 30% this year, the USD index is up 10%, high dividend yield stocks near 10%, and the UK FTSE 100 is only down 2%.
5) Stay tuned into economic trends
The current economic and market environment is accelerating some underlying investment trends, again offering some opportunities in certain industries amid the gloom.
For example, investments in renewables and electric vehicles have increased, with energy prices so high. In automation and robotics investment has also risen, to offset profit margin pressures, while defence stocks are prospering given the rising global security concerns.
Ben Laidler is global market strategist at social investing network eToro