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A Beginner’s Guide To Investing in a Bear Market

The coronavirus pandemic and the subsequent stock market crash have scared many new investors from investing. But just because we are experiencing a bear market does not negate your need to invest.  Investing is important not only so that your money works for you, but also so that you have sufficient money in the future to meet a need, such as your retirement.

In fact, this article will go to show that new investors can navigate a bear market and reach their investment goals.

Understand That the Stock Market Is Not Your Only Investment Option

Novice investors often equate investing with investing in the stock market. But this is far from your only choice, even if you intend to only invest a small amount of money.

One alternative is fixed-income securities. These instruments, which include products such as corporate and municipal bonds as well as U.S. treasuries, are generally safer than stocks, as they focus on preserving principal. On the downside, they generally offer returns that are far lower than stocks and other investments. They are best used as a component in a well-balanced investment portfolio that can protect you against volatility in the stock market.

Alternative assets are another investment option. They include:

  • private equity and venture capital
  • hedge funds
  • real estate
  • commodities
  • tangible assets

Unfortunately, most of these investments are not suitable for beginning investors. The one exception is a particular form of real estate investment called real estate crowdfunding.

You may be familiar with the term “crowdfunding” from sites such as Kickstarter, which allow you to support early-stage startups. Real estate crowdfunding works in a similar way, with the difference being that, instead of receiving swag from a startup in exchange for your contribution, you earn money in exchange for helping a larger investor purchase property. Not only can you receive a significant return on your investment after a certain period, but you may also receive regular dividends.

Real estate crowdsourcing is a great way for new investors to passively own real estate. These investments have the ability to generate a higher rate of return than what you can get through stocks, and they can be less volatile than stocks, too.

Devise an Investment Strategy

Once you have decided what types of investment you want to invest in, you need to come up with a set of strategies for going about it. As individuals all have a different affinity to risk, there is no one right way of doing this. But here are three simple ways that you can start investing, and you can choose any one of them or any combination thereof:

1. Invest Through Your Company’s 401(k) Plan

A 401(k) plan allows you to invest a small portion of your salary automatically. Many employers offer this type of plan and some will even match part or all of your contributions. What is great about investing this way is that you do not pay taxes on your contributions and earnings until after you retire, when your tax rate will likely be considerably lower than it is right now.

2. Invest Your Tax Refund and/or Stimulus Check

People often look at their tax refund as free money from the government that they can spend at will. But the truth is that you actually earned this money, so you should not waste it. Instead, do something positive with it, by investing it. The same holds true of the federal stimulus check that most Americans received because of the coronavirus pandemic. You are much better off investing this than wasting it.

3. Use a Robo Advisor

If you are uncertain what exactly to invest in, robo advisors can be a big help. These programs use advanced computer techniques to match you with investments that will meet your goals. They can also monitor and adapt your investments to keep them in line with your goals, and they can automatically deposit and withdraw money on your behalf. You can even use them to manage your 401(k) and other retirement plans.

In Conclusion

The need for investing is always there, regardless of the state of the market at any given time. By following the aforementioned guidelines, you can successfully invest without experience, even when you find yourself in the midst of a bear market. Afterall, a bear market should be seen as an opportunity to buy low.