Much like death and taxes, bear markets are just a fact of life. And the challenge we face is trying to anticipate their arrival, knowing how long they’ll last, and trying to guess how severely they’ll impact asset prices.
The truth is that since bear markets operate as part of a cycle, not only is it possible to survive them, but also to reap the dividends of your patience when they finally pass.
Here are some techniques you can use to enact damage control on your portfolio, or even better, to get a benefit from the bear market. In a nutshell:
- While investors rarely look forward to the arrival of a bear market, there are some smart strategies that an otherwise long investor can use to benefit from it.
- Buying more of an asset once its price dips is one way to offset your downside losses.
- Also, look out for over-sold values, buying shares of great companies when they’re “on-sale” at heavy discounts.
What defines a bear market?
To get technical, a bear market is when prices of assets plummet, and a negative view spreads, causing the sentiment to further entrench itself. Even as investors anticipate losses during a bear market and selling continues, pessimism continues to grow.
Generally, a downturn of 20% or more in multiple broad market indexes, like the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month time frame, is considered to be entering into a bear market.
The same applies when talking about the rise and fall in the value of alternative asset classes like cryptocurrencies. The tricky part is that when prices start to fall, it’s difficult to guess when they will bottom out.
If you wait too long — and they recover — you’ve lost an opportunity to buy cheaply and can’t profit from the rebound. On the other hand, pulling the trigger too early means your new investments may just fall in with the downward spiral, resulting in a continuing decline in the value of your portfolio.
It’s never easy to identify the right moment to buy or sell in these cases or to manage active trading when you see a bear market coming. A 10% correction in an asset is one thing and a loss most investors can write off.
It’s the 78% correction – for example, the tech bubble bursting from 2000 to 2002, or the 54% lost by the Dow Jones Industrial Average between 2007 and 2009 – that makes most investors panic, pull out and lose money.
Read More | Cape Town crypto platform Revix secures R58.5 million in funding
A lot of the time, in a bull market, a 10% correction will cause Wall Street cheerleaders to appease the public by telling them to stop panicking and buy more.
They might suggest buying dividend stocks as a way to hedge. But if you go all-in when the market falls just 10%, before it falls another 40% or 50%, that 5% dividend is hardly a consolation in light of how much money you’ve lost.
So, as an investor, what can you do to cushion your losses and even make a bear market profitable for yourself? Here are three strategies for overcoming the next bear market:
Don’t give in to FUD
Succumbing to fear, uncertainty and doubt (also known as FUD) is the enemy of any good investor. It’s important to consider the validity of news sources and stay calm, rather than give in to any impulse decisions to buy or sell.
The current bear market for Bitcoin is a good example of one that may cause some investors to act against their best interests. We’ve seen large market pullbacks before, only to witness a strong recovery every time.
If you value long-term growth, you might find it beneficial to ‘hodl’ onto your investments for the future, whether we’re talking about traditional or non-traditional assets.
Look at past bear markets
It can be helpful to research past bear markets and look at which stocks, sectors, or assets actually went up in value (or at least held their ground when others around them were tanking).
For example, during COVID-19 lockdowns around the world, the sales of food and personal care necessities – sometimes called “defensive stocks” – went up, which usually happens in times of crisis, while the sales of cosmetics like lipstick fell (since everyone was wearing masks anyway).
Sometimes a particular sector, like utilities, real estate, or health care, may do well, even if other sectors are losing value. And those are the ones worth investing in when you anticipate a rise in value may be on the horizon.
So as you can see, only impatient, fearful and impulsive investors need to worry about a bear market. If you can stay level-headed and employ alternative strategies, you can do quite well during those times when many others are suffering major losses.
With that said, there’s no better time than during a bear market to invest in up-and-coming asset classes, like cryptocurrencies. In fact, cryptocurrency has been the top-performing asset class of the past decade.
It’s quite difficult to figure out which cryptocurrency will eclipse others in the future, which is why most professional investors would recommend a diversified approach, so you’re not putting all your eggs in one basket.
Instead, you’re buying a basket of cryptocurrencies.
Crypto investing can be complicated, time-consuming and quite intimidating, so Revix has created an ultra-simple investment platform that allows you to own a diversified Bundle of the top cryptocurrencies for as little as R500.
Read More | What Has Outperformed Bitcoin?
And what’s great is that you can sell out of your Bundle and withdraw your funds at any time. Revix’s Bundles are ready-made investments that provide you with direct exposure to the underlying cryptocurrencies within each Bundle. This means that you don’t have to guess which cryptocurrencies to own.
Investing is as easy as signing up and buying a Bundle.
The greatest component of Revix’s Bundles is its “invest and leave it” functionality. Its Crypto Bundles automatically update your holdings every month so that you always stay up to date with the fast-paced crypto market.
“Our Crypto Bundles let the most successful cryptocurrencies come to you, and this puts your whole investing experience on autopilot — making your money work harder for you,” explains Revix founder and CEO Sean Sanders.
Revix offers three Crypto Bundles on its platform, all of which track the crypto market and are known as passive investments as there isn’t a fund manager picking which cryptocurrencies anyone should own. Instead, Revix’s Bundles provide investors exposure to the largest and most established cryptocurrencies.
The Top 10 Bundle is like the JSE Top 40 or S&P 500 for crypto and provides equally weighted exposure to the top 10 cryptocurrencies making up more than 85% of the crypto market.
The Payment Bundle provides equally weighted exposure to the top five payment-focused cryptocurrencies that are looking to make payments cheaper, faster and more global. These cryptos include the likes of Bitcoin, Ripple, Bitcoin cash, stellar and Litecoin.
The Smart Contract Bundle provides equally weighted exposure to the top five smart contract-focused cryptocurrencies like Ethereum, EOS and Tron that enable developers to build applications on top of their blockchains, similar to how Apple builds apps on top of its iOS operating system.
Revix’s Bundles have outperformed an investment in Bitcoin alone over one, three and five years.
“The alternative cryptocurrencies, called altcoins, have outperformed Bitcoin, and this is why our Bundles have performed so well — as we equally weight each of the cryptocurrencies within the Bundles, which diversifies your crypto portfolio,” says Sanders.
Read More | Investing in Bitcoin as a Beginner
What fees does Revix charge?
Revix doesn’t charge monthly subscription fees but rather a simple 1% transaction fee for both buys and sells and a 0.17%/month rebalancing fee (which amounts to 2.04% a year only) on the total Bundle value held.
So, whether you want to invest in a slice of the entire crypto market or a specific niche sector in the crypto space, Revix has a low-cost and easy to use investment option to suit your needs. Sign up with Revix for free, right here.