A Bear Market can take an extreme psychological toll on both new and experienced investors. But on thing stands firm. Nothing is forever. It has been proven time and time again that Bull markets last much longer than Bear markets. So I have some words of advice and psychological tips to keep you in a strategic mindset.
1.) Don’t stop contributing. Keep buying the healthy companies at lower levels. Dollar cost averaging works for small account types. Utilize it. What it does is increase your profit margins significantly when there is a reversal and recovery. I reccomend to buy ETF’s that track the indexes (DO NOT BUY LEVERAGED ONES). This will be elaborated on below.
2.) Hedge yourself against losses the best you can. If you can accumulate 100 shares of anything, then you can sell covered calls to minimize your losses. Covered calls on index ETF’s make a killing in a Bear market and amplify your overall P&L on a recovery. Another way to minimize losses is to hold dividend stocks. This is a time proven way to defend your portfolio from significant losses. But stay away from Yield traps. Make sure you look at the company’s “Max” chart. It should look like it trades sideways or up in price action.
3.) Remember that when the market is fearful, it’s your time to be greedy. A Bear market can make it feel like you’re going to lose everything, but you aren’t if you don’t sell. SO DON’T SELL. You need to remain confident and keep contributing. It can take 1 to 3 years to recover, but you will be so proud of yourself when it does. And your portfolio will make you proud too. Stay true to the long term investment aspect.
4.) Don’t just keep contributing, but also build a large cash position on the side to play any speculation plays during a recovery. For example. If you normally invest $100 a month, then you should change your method. Only invest $50 of it as a normal contribution and save the other $50 for a speculation play on the recovery. I’m talking about putting that extra $50 away to start buying calls in the form of ITM (in the money) LEAPS only after you see a recovery. This will leverage the money you were already going to invest ten fold.
If you have any other advice, please share. Or ask questions. But most importantly, don’t panic. This is an opportunity. You got this.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.