- We are in a bear market now, but investors should not panic.
- This is the time to buy, not sell your stocks.
- Load up on value stocks trading at a discounted rate today.
History has shown that the stock market can move in consistent cycles and these cycles can help investors make or lose money. It all depends on how the investor understands and approaches the different cycles when making investment decisions. A bear market is a period where investors show a lack of confidence and stock prices fall by 20% or more for an extended period of time. This is the time of an economic slowdown and many investors call it a seller’s market. We are in a bear market, hence, it is natural to overreact to the market movement and question whether you should sell your stocks.
But hasty decisions and panic selling can do more harm than good. With all of that said, let’s take a closer look at whether you should sell stocks in a bear market.
Impact of a Bear Market on Your Portfolio
The bear market leads to a dip in the prices of the stocks you already have, and sometimes the drop is quite significant. If you have an urgent need for money, you will have to sell stocks and it could work against you. On the other hand, declining stock prices can also work in your favor if you’re a long-term investor.
If you plan to hold the investment for years, it would be a great move to buy in a bear market. You can buy the top growth or value stocks at a discounted value.
Should You Sell in a Bear Market?
Many investors ask if they should sell stocks in a bear market. A smart investor will never sell during a bear market. Panic selling can ruin your portfolio and take you away from your financial goals. This is an opportunity to buy stocks. You might have to make some risky moves, but this does not mean that there are no opportunities in the market. You might also feel like you are going against the trend, but you will get a chance to make up for the loss in the long term.
Investors with a diversified basket can consider reinvesting the dividends to speed up their returns. It will work as a bear protector and return accelerator. It will also reduce the cost of the portfolio as a whole. Investors should buy short-term or long-term stocks during this period. Since stocks are down, you can go short. Borrow stocks from brokers and sell them at the current high prices and buy them at a lower price to profit at a later stage. Alternatively, you can also bet on a rebound. Simply buy cheap stocks for a fixed amount each month and hold them.
Avoid selling after the stocks have lost their value. An average bear market can last for a few months and it does not indicate a recession. The economy might be slowing, but there is no certainty that a recession is soon to happen.
Bottom Line on Dealing With Bear Markets
So, should you sell stocks in the bear market? No. A bear market might appear dreadful, but it is a chance to find solid opportunities. Do not run away from the market and avoid panic selling.
Instead, stay calm and make the right moves. Your favorite value stocks might be trading at a discount today and it’s a chance to load up on them. Keep your emotions in check and always use your head, not your heart.
The bear market will end and another cycle will begin, this is when you will be grateful for not having sold your stocks.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.