It’s been a turbulent year for the stock market. If you’re feeling anxious about your investments during the bear market 2022, you’re not alone. A bear market- defined as a 20% drop in the stock market from its most recent high- can be a scary time for investors. We will discuss three important things that experts say to do during a bear market.
Don't Panic!
First and foremost, it is crucial to stay calm and not panic. Staying calm can be easier said than done, but it is essential to remember that bear markets are a natural part of the market cycle (learn more about the history of bear markets). They happen from time to time, and they will eventually come to an end. Instead of panicking, take this opportunity to reassess your investment goals and ensure that your portfolio is still aligned with them.
Take a look at your investment portfolio. Ask yourself: “Are my investments still aligned with my goals?” If they are not, now may be the time to make changes, such as rebalancing your portfolio. Rebalancing is the process of buying or selling investments in order to maintain your original asset allocation. Asset allocation is the process of allocating your investment portfolio among different asset classes such as stocks, bonds, and cash. The idea behind asset allocation is to diversify your investments so that you are not putting all of your eggs in one basket.
Why is diversification important? Diversification is important because it helps to reduce risk. Investing in various asset classes means you are less likely to experience drastic losses if one particular asset class experiences a bear market.
For example, let’s say you initially allocated 60% of your portfolio to stocks and 40% to bonds. During a bear market, the value of your stocks may have decreased while the value of your bonds has remained stable or increased. This means that your original asset allocation is no longer accurate. To rebalance your portfolio, you would sell some of your bonds and use the proceeds to buy more stocks. This action would bring your portfolio back to its original 60/40 stock/bond allocation.
Keep Your Investment Portfolio Diversified
As we just discussed, diversification is key to mitigating risk during the bear market 2022. One way to diversify your investment portfolio is to invest in a variety of asset classes. This means having a mix of different types of investments, such as stocks, bonds, and cash. Diversification helps to protect your portfolio from losses during a bear market. When you invest in a variety of asset classes, you minimize your risk because different asset classes tend to perform differently at different times. For example, stocks may go down while bonds go up during a bear market. Investing in stocks and bonds can offset the losses in one asset class with the gains in another.
Another way to diversify your investment portfolio is to invest in a variety of industries. For example, you may consider investing in healthcare and technology stocks.
You can also diversify your investment portfolio by investing in various countries. For example, you may want to consider investing in both United States and international stocks.
Learn more about bear markets from this article by Citizens Bank.
Don't Make Rash Decisions
The bear market 2022 is not the time to sell all of your investments and cash out. Instead, stay the course and ride out the bear market. Making panic-driven decisions will only lead to regret later on. There are a few reasons why cashing out would be a bad idea in a bear market:
-You would have to pay taxes on your gains. When you sell an investment, you are subject to capital gains taxes. This means that you would have to pay taxes on any profits that you made from selling your investments instead of being able to reinvest those profits into the stock market.
-You would miss out on the rebound. Remember, bear markets don’t last forever. There will eventually be a rebound, and your investments will increase in value again. If you cash out now, you’ll miss out on that rebound and would be selling your potential for future growth.
What to Do If You Are Feeling Overwhelmed in the Bear Market 2022
If you’re feeling overwhelmed by the current bear market, reach out to a financial advisor at Iron Point Financial today. We can help you assess your investment goals and ensure that your portfolio is on track. Contact us today to get started!
Rebalancing may be a taxable event. Before you take any specific action, be sure to consult with your tax professional.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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