How to Take Advantage of the Next Bear Market

My generation saw one of the biggest market corrections (drops) in history when most of us were in high school, college or entering the workplace for the first time. That instilled fear of the market and a distrust of Wall Street for much of my generation.

But what’s funny is that most us want to work for these great companies now, not the Wall Street kind but the ones that make up most market indices. Why do we want to work for these companies? It’s because they are innovative, growing and want to change the world. You know what would be better than working for these companies? Owning a part of these companies. And the best time to invest in the stock market is when there is a bear market. You don’t have to trust Wall Street, all you need to do is believe in the company leaders that ultimately guide their companies to success.

Investing in a Bear Market

A bear market is a perfect opportunity to invest in America’s great companies. They are going to continue to grow and innovate even during hard times. These companies are run by successful business owners, entrepreneurs and managers who want to continue to grow their business. 

Investing means being smart and not gambling, which can occur even though one thinks they are investing. Smart investing requires research and the right kind of diversification. ETFs are a great way to take advantage of a bear market as they are already diversified across many companies. Larger long-standing mutual funds are also a good idea as their managers usually have a longer track record. Investing directly in stocks can be hard no matter the type of economy we are experiencing. So if this is what you prefer to do, be sure to do your research. (For more from this author, see: Investing in Stocks May Help You Retire Early.)

We want to be optimists and find investment opportunity in the companies that have already proven themselves through previous bear markets.

Be Cautious When Investing, but Don't Panic

There is reason to be cautious in a bear market, but don’t panic. Panicking will only cause you to act emotionally and maybe even sell the investments you already have. Don’t fall victim to your fears. Fear-driven investing decisions are almost never good and are what cause most poor investment returns. Embrace the opportunity of a bear market that allows you to invest in America’s great companies at a discount. I like to think of it as the ultimate sale. Remember, the stock market has shown us many times that bear markets are short-term and increased value is long-term.

Don’t be a negative Nancy and think that the world is ending when the next bear market occurs. Be an optimist and recognize the great investing opportunity that just opened up for you. Panicking is the last thing that you want to do. Instinctively I get it, Why put money into something that seems like a never-ending hole? But it’s not; historically every bear market lasts about a year-and-a-half and then continues to go up. The value of businesses has historically gone up.

(For more from this author, see: 10 Common Habits That Can Increase Wealth.)