A bear market is referred to a fall in the stock market prices below 20 % from its recent high.Bear market can considerably erode the wealth of investors in a very short time.But smart investors can generate profit or restrict their losses to minimum from the falling stock prices by using low risk investment strategies.Let’s have a look on strategies for the bear market:
Buy a put option: A put gives the holder of it the right, but not the obligation, to sell a defined amount of the underlying security at a certain price at or by a certain date. It has the potential of infinite returns in a falling market scenario. Risk is minimum to premium paid for buying the put option. High net worth investors can use it to hedge the large position in particular share to keep the losses minimum if bears dominate the market
Buy defensive stock: Buy shares from defensive sectors such as fast moving Consumer goods and pharmaceuticals/ healthcare stocks. These sectors commonly have low beta stocks and witnessed less catastrophe during the bear market.Avoid risky stocks such as reality, automobiles, financials and metals.
Value investing: Value investors are one who buys out of favour stocks which are available at a cheap valuation and has very strong fundamentals.These stocks have tremendous potential of giving good profit when the market scenario changes to a bull market.
Diversification of portfolio: Diversification of portfolio into fixed income assets such as bonds, gold and shares help to keep losses in check. In general precious metal such as gold and silver prices climb in falling stock market scenarios.
Invest in mutual funds: Mutual funds offer diversification and are usually managed by expert fund managers at a low cost. Fund managers pull together money from different investors and invest it in various verticals such as shares, bonds etc.
Start SIP (Systematic investment plan): If somebody is looking for low risk strategies for bear market, he or she must start or continue SIP in quality stocks. Monthly SIP helps to accumulate quality stocks over the time horizon. Over time it has exponential growth potential.During bear market stock prices fall and it provides a good opportunity to accumulate stock at a reasonable price.