We entered the terrible bear market. And studying your portfolio right now may not bring you much joy. But don’t worry. History tells us that bear markets, recessions and even collapses do not last forever. In fact, these moments are actually great moments to study companies and stocks – instead of focusing on presenting your portfolio. And they are great occasions to buy stocks.
So where should you put your money in the bear market? Here’s what to do with $ 10,000. But you can increase or decrease this plan depending on how much money you have to invest. Let’s start.
It is important to remember our investment horizon. I prefer long-term investment. By that I mean five years or more. This gives companies a chance to recover if we happen to be going through difficult times – like today. And if the economy proves strong, this five-year period offers companies a chance to grow.
First, I would subtract $ 3,000 from our $ 10,000 and focus on stocks that are not too sensitive to the economy. Even if we do this in the long run, we know that these types of stocks often perform better in times when consumers spend less, for example. Here is a great place to explore in the world of healthcare.
One possibility is Vertex Pharmaceuticals (VRTX 2.69%). The company is a leading retailer of cystic fibrosis treatment worldwide. Obviously, patients need these drugs regardless of the economic environment. So economic problems are unlikely to weigh on Vertex’s revenue. Another example is Intuitive surgery (ISRG) 1.17%). Intuitive is the largest player in the global market for robotic surgery. The company generates revenue when it sells or leases its robots – and with each operation through instrument sales.
I would invest another $ 3,000 in companies with dividend growth experience. Here the best place to look is the lists of dividend aristocrats or dividend kings. Aristocrats are companies with an S&P 500 index that have raised their dividends for at least 25 consecutive years – kings have increased dividends for at least 50 years. The importance of dividends? They offer you income. And companies with a long history of raising dividends would probably think twice before cutting pay.
You can find dividend stocks in various industries. But in the bear market, you may want to focus on companies that sell basic items. Purpose (TGT 3.88%) is king for consideration while Clorox (160 2.36%) is an aristocrat for verification. Nowadays, companies that generate revenue from essential products may suffer less than companies depending on discretionary purchases.
The next step: I would invest $ 2,000 in growth stocks that have suffered – and may continue to suffer. That is, as long as I believe in their long history. Here are two examples Tesla (TSLA 9.35%) and Etsy (ETSY -0.42%). Tesla is the market leader in electric vehicles, delivering a record number of vehicles last year and increasing production with two new factories. Etsy (ETSY -0.42%)e-commerce platform for sales of handmade items, generates billions of dollars in gross sales of goods – and continues to increase buyers and sellers using its platform.
If you are careful …
These types of stocks can suffer during a bear market. Right now you can get them at reasonable prices. But they could bounce back at any moment. Of course, they also pose a greater risk than the other types of shares I have talked about so far. So, if you are a cautious investor, you may want to limit your exposure. Instead, you may want to choose other companies that have suffered – but have longer experience of success. Amazon (AMZN 2.32%) may be one to consider.
Then I would set aside $ 2,000 as an opportunity fund. You can use this to invest at any time during the bear market – or when the market starts to recover. The idea is to have cash to invest in case you decide to add to favorite stock positions. Or if you come across a new investment opportunity.
Finally, bear markets can look scary at first. But the good news is that there are two big bright spots. First, as we mentioned earlier, these markets are temporary. Second, the bear market gives us this opportunity to invest in different ways. And these investments usually pay off in the long run.