A bear market can be a scary time for investors. Stocks can plummet seemingly overnight, and it can be difficult to know what to do to protect your portfolio. Bear markets are guaranteed to happen and it is important how one reacts when they do. In this blog post, we will discuss the 5 best ways to save your portfolio during a bear market. We will also look at some stock options that you may want to consider during this time. By following these tips, you can help ensure that your portfolio remains safe and secure during these uncertain times!
In this article by Ethan Roberts for Investopedia, he touches on 4 ways to prosper in a bear market.
https://www.investopedia.com/articles/investing/070115/4-ways-survive-and-prosper-bear-market.asp
I agree with most of what the article says, like being on the lookout for oversold stocks. He also mentions selling naked puts. However, I don’t believe it is the time to be getting defensive and buy protective puts to further limit your downside losses. If you are already in a bear market, that ship has sailed. That should have been done when the market was at highs.
Diversify
One of the best ways to protect your portfolio during a bear market is to diversify your investments. This means that you should not put all of your eggs in one basket. Instead, you should spread your investments out across multiple different asset classes. This will help to mitigate the risk of losing everything if one particular asset class takes a hit.
I like to have stocks and ETFs spread among at least 5 different sectors. For example, in my portfolio, I have an ETF for the IYF financial sector to take advantage of that sector since it has been hit. Interest rates are rising so it should do well. I also like to have some exposure to foreign markets as well. Tech has been hit so I have some beaten-down tech stocks. This helps to further diversify my portfolio and reduce risk.
It’s important to keep some cash on hand as well to take advantage of any further market dips.
Dollar-Cost Averaging
Another great way to protect your portfolio during a bear market is to dollar-cost average your investments. This means that you should invest a fixed amount of money into a security at regular intervals. This helps to smooth out the volatility of the market and can help you to avoid making emotionally-driven investment decisions.
By doing this you end up buying when the market is down and stocks are on sale which brings down your average cost basis.
Rebalance Your Portfolio
Another way to protect your portfolio during a bear market is to rebalance your portfolio. This means that you should periodically adjust the mix of assets in your portfolio to ensure that it remains in line with your investment goals. This can help you to avoid making impulsive decisions during a time of market turmoil.
Check out M1 Finance (I’ll put a link in the description below) as they offer free rebalancing of your portfolio. So you don’t have to worry about it. Plus, their portfolios are made up of several ETFs so you get automatic diversification.
Selling Naked Puts
A great way to protect your portfolio during a bear market is to sell naked puts. This is a strategy that can be used to generate income while also buying stocks at lower than the current market value. By selling put options, you are essentially giving someone the right to sell shares of stock to you at a certain price. If the price of the stock falls below the strike price of the put option, then you will be obligated to buy shares of the stock at that price. This can provide income for your portfolio while also buying stocks at lower prices.
Buying LEAPS
Another strategy that can be used to protect your portfolio during a bear market is to buy LEAPS. LEAPS are long-term equity anticipation securities. These are options with a longer expiration date than traditional options. With 1 option contract, you can control 100 shares of stock at a lower cost than buying the 100 shares outright. I normally only buy LEAPS that are outside of 1 year to ensure that the stocks have plenty of time to recover. Here is a video explaining how to place a trade to buy a LEAP in Nordstrom (JWN).
Buying the best in class beaten-down stocks
A final strategy that can be used to protect your portfolio during a bear market is to buy the best-in-class beaten-down stocks. This means buying the shares of companies that have been hit the hardest by the market sell-off. These companies are typically growth stocks with high valuations. You will want to understand how to correctly value a stock so that you know that you are picking the best stocks in a particular sector.
However, if you believe that the company has a bright future, then buying its shares at a discount can be a great way to grow your portfolio.
Conclusion
No matter what strategy you choose, it is important to remember that bear markets are a natural part of the market cycle. They will happen from time to time, and there is no way to completely avoid them. However, by following these tips, you can help to grow your portfolio during a bear market.
If you’re looking for more information on stocks, options and finance, please be sure and check out https://optionsfinanceprofits.com/ and https://darrensteves.com/. As well as the YouTube Channel below.
https://www.youtube.com/channel/UC_pe6neav4Q6WDmGswHStFA/videos
What are some other ways that you protect your portfolio during a bear market? Let us know in the comments below!