What is a Bear Market, and How does it Affect Investments

What is a bear market? While there is no one definition of a bear market, in short, it is when the stock market falls for a significant amount of time. Though the amount of the decrease can widely vary, bear market is usually defined as a drop of 20% or more. To be considered a true bear market, this fall must last for a few months at least, as opposed to a correction which is a short-term decrease. Bear markets can be caused by a variety of things. The economy can play a huge factor in a drop in the stock market.

A bear market can really throw a kink into short term investor’s plans. The best way to make money with investments are to “buy low and sell high”. At the beginning of a bear market, many may buy stock in hopes the market will correct itself and cause quite a gain in money. If the market stays down, however, there is no money to be made. Stagnant money – especially at low rates – does nothing positive for a portfolio. The expectation that money can be made with a sell can drag out for months, giving false hope to the investor.

If you are a long term investor, however, things may look good. If you have no intention of selling anytime soon, buying stock with appropriate companies at such low prices can really pay off in the long run, when the market gets back to normal.

You may be tempted to think the trend will last forever, and sell what stock you have in attempts to keep your dignity. This isn’t always the best idea. Selling stocks for less than you bought them can cause a significant loss. The best thing to do in this situation is to put your money with safe companies that you know will eventually rise up. It is important to look at the business itself and not their stocks at one point in time. If you decide to buy safe stocks at such a low price, holding on to them until the market gets back on its feet can really help you in the long-run.

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