1. Max Out Your 401(k)/Retirement Account Right Now
One lesson from the bearish market of 2007 to 2009 is that if you purchase index funds at routine periods through a 401(k), you’ll succeed when the market rebounds. Those who utilized this strategy didn’t understand whether the bear would end in 2007, 2008 or as it finally did, in March of 2009.
I remember many having their 401(k) was cut in half by the time the last bear market ended, but all of the shares purchased en route ended up being insanely profitable when the market finally reversed and climbed higher.
By 2015, those who hung in there have made massive money from the cheaper shares bought during the slump. Now, throw in company matching and all of the cash dumped into the account from that, plus the shares purchased before the peak in 2006 to 2007, and you can imagine how much a portfolio could grow.
Now, it’s probably not smart to go all-in at any one time, but simply to keep investing small amounts at routine periods. After a while, you won’t even miss the money and your portfolio will be growing exponentially behind the scenes.
2. Look for Stocks That Pay Dividends
While the stock’s price is dictated by buying and selling in the stock market, a dividend comes from a company’s net income. If the stock’s price decreases, yet the company is strong, making a profit, and still paying a dividend, it becomes a great option for those looking for additional earnings.
Finding dividend-paying stocks is one of the core tenants of value investing. Just make sure you know what you’re looking for and don’t just pick a random stock because it pays a dividend. There is a method behind the madness here, I cover this for beginners in my book.
3. Find Sectors That Tend to Increase In Price During a Bear Market
It’s useful to research past bear markets to see which stocks, assets, or sectors actually went up (or at least held their own) when, all around them, the market was tanking. Numerous financial websites publish sector efficiencies for different time frames, and you can easily see which sectors are presently outshining others.
Start to designate a few of your investment dollars in those sectors, as when an industry does well, it typically carries that out for an extended period. Bear markets can also have various catalysts, so this strategy can likewise help investors to designate their investments accordingly.
4. Diversify and Shuffle Sectors by Using ETFs
It’s no secret that various sectors do well throughout the ups and downs of economic phases. For example, when the economy is seeing an uptick, a business that sells big-ticket products such as technology equipment, cars, green home improvement, healthcare innovation, and other comparable big purchases, tend to do so effectively. Because of this, so do their stocks (these are described as cyclical stocks).
When the economy looks like it’s getting into an economic crisis, it pays to change to protective stocks connected to basic human needs, such as food (i.e. grocery stores in the consumer staples sector), blue-chip energy stocks, and even clothing and some real estate (depending on location and target audience).
So utilizing exchange-traded funds (ETFs) with your stocks can be a great way to include diversity and use an industry rotation technique.
5. Buy Dividend-Paying Stocks on Margin [Advanced]
Another advanced technique is buying stock on margin. You have probably seen this in your online brokerage account–the ability to use margin. Margin is basically a loan you get from your brokerage, up to a certain amount, to buy stock.
Why would you do this?
Well, if you can find stocks that are beaten-down, but still pay a dividend, you might be able to buy a bunch of shares on margin (not using your own money) and hope they appreciate in value. Plus, you add in the bonus of dividends.
Best-case scenario–the stocks rebound and you can sell them off, repaying your margin balance and profiting in the meantime. Worst-case is that the stocks continue to decline and you hope that the dividends can help recoup some of the cost.
Buying on margin is risky, so you have to know what you’re doing. But if done correctly, you can be super successful in a bear market.