The stock market has had an extremely tough 2022 amid rising interest rates in the US and high inflation.
As we enter 2023, there is more concern over a potential global recession.
Should you invest or not? That’s a big question many investors ask themselves in times like these.
Well, my colleague Tim has previously written about the value of staying invested instead of jumping in and out.
With this in mind, here are three top tips for investors to get themselves through a bear market.
1. Set realistic goals for investing
It is important to invest with a realistic expectation when you get started. You must have a safe and manageable amount allocated for investing.
This amount should be your savings minus the emergency fund allocated as well as your other expenditure commitments.
With this mindset, you will not be forced into selling your investments when you need funds for your other commitments.
This is important as a bear market could last longer than a few years and if you do not have the holding power, you could end up selling your investment at a loss.
For investors with lower risk appetites, a good suggestion is to start allocating S$100 per month into your savings portion for investing.
However, there will be charges of minimum commission, which could eat into your profit significantly if you invest a small amount.
Investors also need to have reasonable expectations for the return of their investment.
While some younger investors who have been impressed by the returns of alternative asset classes, such as cryptocurrencies, returns from a portfolio of stocks are likely to be less extravagant but also less volatile.
2. Invest in bonds
While the bond market does not offer returns as high as the stock market, government bonds are a much safer option that offer a steady flow of repayments to investors.
However, accessing government bonds is not as straightforward as buying stocks and it can be costly and complicated for some retail investors.
An alternative is to explore investing into the bond market via retirement and investment accounts that invest into bond funds, including many denominations of government bonds.
3. Explore dollar-cost averaging
The dollar-cost averaging (DCA) approach is one of the simplest methods for investors to create a disciplined habit of investing no matter what the market environment.
By deploying dollar-cost averaging, investors will buy more units when stock prices are down and the same amount of money will buy less units when the market is trending upwards.
This helps investors to spread out his or her investment while mitigating the risk of buying stocks at a high entry point.
It also helps investors to focus on the fundamentals of their investment, even during a bear market.
Stay invested
In hindsight, it is easy to say that investors shouldn’t have started investing in 2022 but a similar call was made back in 2020 before the market rebound.
In short, instead of trying to time the market, investors should focus on companies that have resilient business models.
Economic cycles will come and go but the stock market always recovers after a bear market.
This is why investors need to remain disciplined and patient, even as the stock market in 2023 is likely to be filled with large swings.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
