A guide to surviving the crypto bear market
- Bear market: Origin, severity and duration
- Strategic management in bear market
- Dollar Cost Averaging (DCA)
- Diversify your portfolio
- Defensive Assets
- Index Fund or Exchange-Traded Fund (ETF)
- Strengthen your mentality
- Final decision
The bear market represents the most worrying phase of any investment cycle, but there are several ways to continue on and weather the storm.
Bear market: Origin, severity and duration
According to Nerdwallet, bear markets are often associated with the global economy, meaning that they occur before or after an economic downturn.
Essentially, the continued decline in price from recent peaks isn't the only indicator that a bear market is underway. There are other economic indicators that investors should keep an eye on. This makes it possible for them to find out if a bear market is taking place. Some of the indicators include loan interest rates, inflation, and employment or unemployment rates, among others.
However, the relationship between the economy and the bear market is even simpler than that. When investors notice that an economy is shrinking, there are concerns that corporate profits will soon begin to decline as well. This pessimism causes them to sell off their assets, thus pushing the market down even further. According to Scott Nations, author of The Anxious Investor: Mastering the Mental Game of Investment, investors often overreact to bad news.
Bear markets are usually shorter than bull markets. As recently reported by CNBC, the bear market lasted about 289 days. However, a bull market can even be longer than 991 days. Additionally, an Invesco data analysis report shows that the average inter-market loss in a bear market is 33%. So bear markets are often not as effective as bull markets, which is 159% on average.
While no one knows for sure exactly how long a bear market can last, there are a few tips on how to get through it.
Strategic management in bear market
As an investor, there is probably nothing one can do to prevent adverse market conditions or the economy at large. However, there are many potential options we can take to protect our investments.
Dollar Cost Averaging (DCA)
Dollar Cost Averaging (DCA) is an investment strategy in which an investor buys a fixed dollar amount of a certain asset on a regular basis, regardless of the asset's price in dollars. This strategy is based on the belief that over time, the price will generally pick up pace and eventually go uptrend in a bull run.
Once these conservative investing methods are mastered, an investor's purchase price is averaged over each purchase. This method can help the investor enjoy the benefits of the price drop and also avoid the “peak swing”. After all, the bear market is not only scary in the investment world, but also an opportunity to buy digital assets at the lowest price.
Diversify your portfolio
For investors with multiple asset classes in their portfolios, the impact of the bear market may not be so severe. When a bear market occurs, the price of assets generally falls, but not all assets fall equally. This valuable strategy ensures that an investor has a mix of assets that lose a lot of value and assets that don't lose too much value in their portfolio in a single drop. As a result, the total loss from the portfolio will be reduced to a minimum.
During a long bear market cycle, a number of companies (mainly small and rising young ones) gradually wear out in this cycle, while other older companies have better balance sheets that can withstand extreme conditions for the time needed.
Therefore, anyone looking to invest in stocks should look for stocks in companies that have been in business for a long time. Those are defensive stocks, and they are usually more stable and reliable during bear markets.
Bonds can also provide investors with some returns in bear markets. Because bond prices often move inversely to stock prices. Thus, bonds are an important component of a perfect portfolio, helping investors cope with the pain of a bear market.
Index Fund or Exchange-Traded Fund (ETF)
Several sectors are expected to perform quite well during the market downturn, including the utilities and consumer goods sectors. And more than any other, these sectors can be called “stable assets”. Investing in the sectors mentioned above through an index fund or an exchange-traded fund (ETF) can be a smart move. This is because each index fund or ETF includes shares of different companies.
Strengthen your mentality
There is no doubt that the bear market will cause many investors to run away and never look back. Their will and endurance will also be tested. However, as history has proven, the bear market does not last forever and neither does the current market.
According to Hartford Funds, more than 26 bear markets have taken place since 1928. And, each one of those bear markets was immediately followed by a bull market, yielding more than enough profit to cover any losses that might be incurred.
So it's important to be less upset about a bear market, especially if you're making a long-term investment, such as for retirement. Because in the end, the bull cycles you witness along the way will outweigh the bearish ones.
As explained earlier, there are major risks that come with the bear market. However, it also provides a good base from which to form the next bull run. Nevertheless, that depends on good strategic investment management and great patience. Therefore, profits can be guaranteed when the market eventually turns, whether you're always DCA, diversifying into other assets, investing in ETFs and index funds, or stocks.
Losing money is never fun, but the best way to beat a bear market is not to run. Instead, keep an eye on the range of other options and stay calm.
Blockchain and cryptocurrencies are still very young markets compared to the traditional financial market. And this market will still see many blockchain projects fall to the brutality of the bear market if they are not carefully prepared and do not focus on developing their products. BHO Network has a team that is seasoned in the market as well as in technology, and our team will build and grow continuously in bull or bear markets.
Published on June 15, 2022
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