Bear market defines as the condition when the stock market falls for a long period of time. It usually declines for 20% or more. To measure the decline, investors usually look at the stock price decreasing percentage on multiple market indexes. Bear market effects can be significant due to that extreme loss.
What brings a bear market?
There are various reasons that can trigger a bear market, including panicked investors over economic news or declining corporate profits. Besides, a financial crisis in a company can bring a domino effect to other interdependent industries.
Bear market usually gives a traumatic effect for investors. It also usually scare the exact time of bear market to happen. Thus, it brings that huge psychological effect.
Ironically, that fear can be the factor that keep the market alive.
Its down Influence on Investment
The most general effect from a bear market is dropping value of securities you own. The price can drop by a substantial degree. That value drop can happen in sudden or it also can deteriorate slowly over time.
During the bear market, some investors usually choose to focus on two main principles which can bring them profit. One, a bear market will be bad if you immediately sell your stock to directly get your money. Two, for long-term value investor, they have been familiar with falling stock prices and depressed market.
Then, if you are one of those investors who plan to hold shares for decades, a bear market can give you the opportunity to accelerate your return. Lowered stock price combined with periodic fixed can bring you the average cost basis and shorter portfolio once the bear market eases up.
That way, you can buy more shares when the price drop and fewer shares when it moves up.
In addition, owning dividend paying stocks and reinvesting on dividend acts can be your return accelerator.
Also read: 7 Tips to Invest in Stock Market (Part 1)