Play Video

A How to Guide for Investing in a Bear Market

A How to Guide for Investing in a Bear Market

With interest rates on the rise and market volatility putting unprecedented strain on Canadians’ financial investments – there is a clear elephant, or rather bear in the room. You might be thinking, is now the right time to kickstart my investment journey? For Canadians looking to take the leap into investing, being confronted by volatile markets can put a knot in your stomach because of the fear that the money you’ve worked hard to earn and invest towards achieving your personal financial goals, such as purchasing your first home or building a nest egg for retirement, could be at serious risk. However, have no fear. By adopting sound financial habits, you can enter the investment landscape and be better equipped to navigate a bear market.

What is a bear market?

When financial markets experience a long-lasting period of price declines, that’s when you enter a bear market. A bear market occurs when stock prices fall by 20% or more – this can often last for months or even years depending on the financial landscape.

While foreshadowing a bear market may not be possible, for most Canadian investors the question is – what can I do to invest with success in a bear market? Here are a few tips for you to consider – no matter if you are at the beginning or in the middle of your investing journey – when investing in a bear market:

`1. Make sure to diversify your investment portfolio

You the know age-old saying, don’t put all your eggs in one basket? The same rule applies to your investing strategy, and that’s where diversification comes in. By diversifying your investment portfolio and putting your money across a wide range of investments, you can reduce your financial risk in volatile times. This ensures that when the market dips in one sector, all your investments are not affected because you have a diverse range of industries. For instance, you might invest in a telecom company but also purchase investments of a company in the entertainment sector. Over time you might notice that your entertainment stocks are decreasing in value, while your telecommunications stocks appear to be holding still. That’s the value of diversification! Spreading out your portfolio across different market segments can help you avoid losing all your money and will allow you to continue generating wealth even when one industry experiences a crash. Simply put, diversifying your investments can help you weather economic downturns and grow your money wealth at the same time. That’s a win-win!

2. Avoid making impulsive investment decisions 

For many of us, when we see the market drop and our investments lose value, rushing to sell your investments can seem like a desirable option to retain at least some of your earnings. However, the reality is that reacting impulsively could cost you more in the long run and put you at risk of missing out on earnings when the market stabilizes. Before selling your assets, remember to evaluate your current investments and risk tolerance to ensure that you have selected assets that match your comfort level in precarious financial times.

3. Embrace the Bear…

Bear markets certainly test even the most experienced of investors. However, as you start your investment journey it’s important to remember that market dips and climbs are a normal part of the financial cycle. For short-term financial goals of five years or less, such as planning your summer vacation, avoid putting your money in risky investments such as stocks and rather choose more low to moderate-risk investments such as income focused mutual funds, ETFs, and GICs. For long-term goals – such as investing for retirement – you may consider higher-risk investments such as growth focused mutual funds, ETFs and Stocks because your finances will have a longer window to bounce back from market turbulence. Whether your financial goals are short or long-term, it’s important to remember that all investments carry risk, particularly in economic slumps. If you are a new investor, particularly in a bear market, speak with a financial advisor to help determine your risk tolerance and select the right investments that match your individual needs and financial goals.

Don’t let a bear market hinder your financial success… speak with a financial advisor at your local credit union.

Most Canadians will experience at least one bear market in their lifetime, and these periods put the strength of your finances to the test. However, financial bear markets don’t need to stand in the way of your financial success. With the right financial planning, you can set yourself up to confidently weather financial storms and attain long-term returns. Credit unions are a great financial option to help you gain a deeper understanding of your risk tolerance and investments in periods of market volatility so that you can remain confident in your finances all year round. Not yet a credit union member? Find your nearest credit union, click here.