WiserAdvisor – Blog

Main Menu

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
logo
I Want to Take Charge.
HELP ME FIND AND COMPARE TOP VETTED FINANCIAL ADVISORS IN MY AREA.

FINRA/SEC Registered Advisors

  Your Information is Safe and Secure

WiserAdvisor – Blog

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
Investment Management
Home›Investment Management›Portfolio Protection Strategies to Be Successful in Bear Markets

Portfolio Protection Strategies to Be Successful in Bear Markets

By WiserAdvisor Insights
April 23, 2020
1956
0
Share:
Portfolio Protection Strategies

A peak to trough drop of 20% or more in US large cap stocks is referred to as the bear market. This is a time when the prices of securities drastically fall. Although it is hard to predict a bear market and how long it can last, the 2020 bear market can be easily linked to the Coronavirus. Most investors tend to panic in such a situation. However, the following strategies can help them protect their portfolios even in a bear market.

Do not sell stocks

A common mistake that most investors follow is to sell their shares as soon as they see their prices falling. This brings in nothing but losses. Stocks should indeed form a significant part of a portfolio. The bear market may seem volatile, but keeping stocks intact will give individuals the opportunity to rise in the market after a downturn.

Invest in puts

Put options allow the investor to sell the stock at a fixed price within a given frame of time. If the price of the stock falls below the strike price, the investor can sell these stocks back to the seller for a predetermined price. However, put options have an expiration date, and the re-selling should be accommodated before the expiration date. Put options can help individuals override the losses in the market. They give investors the option to sell their shares at a comparatively better price. Investing in short term and long term puts can be a great strategy to protect a portfolio against market downturns but needs thorough understanding, knowledge, experience.

Include more cash investments

Cash investments can significantly reduce risk in a portfolio. These investments are unaffected by the volatility in the market and offer investors the chance to take advantage of the changing market conditions. Investors should aim at contributing the money from tax refunds, returns from selling personal assets, etc. to their cash reserves. Not all the money that one earns from their portfolio should be reinvested in stocks, some of it should also be contributed to cash investments.

Sell naked puts

In a naked put, the investor sells the put without owning or having a position in the stock. Investors usually sell put options keeping in mind that the put will expire above its strike price or be worthless. If this happens, they get to profit from the premium.  A put option can be sold by investors in return for cash in a bear market, and the premium can offer the portfolio the necessary protection in a downturn. Selling short term puts on well established companies can be a good strategy to follow.

Look for stocks that can survive a bear market

Sometimes stocks like real estate, gold, and other precious metals remain unaffected by bear markets. Even in the Coronavirus pandemic, the one sector that has not been negatively hit by falling prices is the food sector. Stocks of personal care and hygiene products, gold, food, etc., have also performed well in bear markets in the past. It is helpful to do a past market analysis to see how stocks of different commodities react to bear markets. Investors can review company performances published by financial websites to see how each sector is performing. This will help individuals make better investment decisions. Another vital thing to note here is that sectors that do well in bear markets tend to perform well for a significant amount of time, bringing in good returns and some stability to the portfolio.

Diversify your portfolio

Diversification as a strategy is applicable to all cycles of a market, but it becomes even more essential in a bear market. The stocks of a single country or company are likely to perform in the same manner. However, a well diversified portfolio with equal allotment to several sectors, countries, and companies is expected to override the change in the market. Different sectors and economies react to the market differently. Investors should take advantage of this phenomenon to protect themselves from risk.

Look outside the portfolio as well

The last two stock market falls to hit the world were the Great Recession and the dot com bust. Both these incidents taught the world that a falling stock market is usually the outcome of a weak economy. When the prices of stocks show a continued decline, the economy suffers too. This is where recessions eventually sets in. Recession can further give rise to a number of problems like unemployment, pay cuts, low profits, etc. One of the most effective strategies to be prepared in such a scenario is to have liquid cash outside the portfolio. Liquid cash can offer people the necessary financial cushion in a suffering economy and market.

Simple strategies like reducing avoidable expenses and lowering the over cost of living can help people build their cash corpus. This is also a time when people should reduce their debt. Instead of steering into recession with a hefty load of debt, investors should focus on eliminating debt at the first onset of market downfalls.

To sum it up

A bear market can seem frightening, but there are strategies that can help individuals protect their portfolios. Understanding and evaluating how various stocks performed in past episodes of bear markets can help investors gain more insight into how to keep a balanced portfolio. Diversification and cash reserves should be an investor’s top priority during these times.

If you need a professional opinion on how to protect your portfolio in a bear market, you can get in touch with financial advisors.

TagsCoronavirus PandemicFinancial Marketinvestment portfolioInvestment StrategyStock markets
Previous Article

The Dos and Don’ts to Protect your ...

Next Article

COVID-19 Pandemic: Why It Is the Best ...

0
Shares
  • 0
  • +
  • 0
  • 0
  • 0
  • 0
WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • Retirement Income
    Retirement Planning

    What Are Good Tax Strategies for Retirement Income – Tips and Guide

    December 18, 2020
    By WiserAdvisor Insights
  • Financial-Advisor
    Financial Advisor Guide

    What are the Costs of Hiring a Financial Advisor?

    October 18, 2021
    By WiserAdvisor Insights
  • myths about retirement
    Retirement Planning

    Shedding Light on The Myths of Retirement

    August 12, 2019
    By WiserAdvisor Insights
  • financial documents
    Financial Advisor Guide

    What are the Financial Documents required while meeting your Financial Advisor?

    July 22, 2019
    By WiserAdvisor Insights
  • Investing with little money
    Financial Planning

    The Right Way to Start Investing with Little Money

    September 6, 2019
    By WiserAdvisor Insights
  • Improve Your Finances Significantly
    Financial Planning

    3 Simple Steps to Improve Your Finances Significantly

    May 7, 2020
    By WiserAdvisor Insights

You might be interested

  • Estate palnning Doucuments to be prepared
    Estate Planning

    5 Essential Estate Planning Documents to Be Prepared Amid the COVID-19 Pandemic

  • Tips to adapt your education planning in the pandemic era
    Education Planning

    Tips to Adapt Your Education Planning in The Pandemic Era

  • Robo-Advisor
    Financial Advisor Guide

    Robo-Advisors vs. Financial Advisors: Which option is the best for you?

Don't miss out! Get our Helpful Financial Tips Newsletter

  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • Do's & Don't investment portfolio

    The Dos and Don’ts to Protect your Investment Portfolio in a Bear Market Amid The ...

    By WiserAdvisor Insights
    April 22, 2020
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Why investing for goals is the right way of investing

    Why Investing for goals is the right way of Investing?

    By WiserAdvisor Insights
    July 16, 2019
  • Portfolio diversification

    5 Dangers of Over-Diversifying your Portfolio

    By WiserAdvisor Insights
    July 26, 2019
  • Financial Planning for couple

    The Complete Guide on Financial Planning for Couples

    By WiserAdvisor Insights
    August 1, 2019

Categories

  • Business Finance (2)
  • Education Planning (29)
  • Estate Planning (20)
  • Financial Advisor (1)
  • Financial Advisor Guide (30)
  • Financial Planning (121)
  • Investment Management (65)
  • Personal Finance (10)
  • Portfolio Management (1)
  • Retirement (16)
  • Retirement Healthcare (1)
  • Retirement Planning (79)
  • Retirement Plans (1)
  • Uncategorized (2)

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

Follow Us

  • Recent

  • Popular

  • High Net Worth Wealth Management

    7 Wealth Strategies For High-Net-Worth Individuals In 2023

    By WiserAdvisor Insights
    January 27, 2023
  • Financial New Year's Resolutions

    6 Financial New Year’s Resolutions for 2023

    By WiserAdvisor Insights
    January 11, 2023
  • Future Investment Trends 2023

    Key Trends and Concerns for Investors in 2023

    By WiserAdvisor Insights
    January 9, 2023
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • Do's & Don't investment portfolio

    The Dos and Don’ts to Protect your Investment Portfolio in a Bear Market Amid The ...

    By WiserAdvisor Insights
    April 22, 2020

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 700
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2022 WiserAdvisor.com. All Rights Reserved.