In this article, we are going to give you our best bear market investing strategies in 2022 that might help you become much wealthier.
The year has been tough for both new and seasoned investors. In March, both the S&P 500 and iconic Dow Jones Industrial Average fell into official correction territory (losses of at least 10% from their highs). Worse yet, the growth-focused Nasdaq Composite fell into a bear market between mid-November and mid-March, dropping 22%.
Although bear markets are an inevitable aspect of the investing cycle, they may be frightening for a variety of reasons. For example, when the market begins to fall, it often falls at a greater rate than it rises; when the market begins to rise, it does so more gradually. Furthermore, you can’t forecast when or how far the stock market will decline until it actually happens.
Best bear market investing strategies in 2022
Despite these uncertainties, investing your money during bear markets may be a very wise decision. The subsequent are five brilliant bear market investment ideas that might help you become much wealthier.
Play the long game
The first is to relax and play the long game, which many regards as the most essential approach. Bear markets and stock market corrections are an inherent part of the investing cycle. Since 1950, the S&P 500 has gone through 39 corrections of at least 10%. This means that on average, every 1.85 years, there is a double-digit percentage decline in the market. Even though Wall Street isn’t always consistent, it provides you with a good sense of how common double-digit percent losses are.
The stock market correction, on the other hand, is not very long. The typical duration of a stock market downturn was just 188.6 days over the previous 38 corrections (about six months), which is relatively short. If we limit our scope to the past 35 years, when computers began to be used on trading floors and information became more readily available to Main Street, the average correction length shrinks to just 155.4 days (or roughly five months). Bull markets generally endure for years, with each significant decline eventually erased by a bull market rally.
Furthermore, data from Crestmont Research reveals that the rolling 20-year average annual total returns for the S&P 500 between 1919 and 2021 have never been negative. What this indicates is that if you invested in an S&P 500-tracking index at any point between 1900 and 2002 and held on for 20 years, you would have made money. Only two of the 103 end periods reviewed had an average annual total return of less than 5% when including dividends, whereas over 40 ended with average yearly total returns of 10% or more.
Dollar-cost average into your favorite stocks
Next up on our best bear market investing strategies is dollar-cost averaging. Dollar-cost averaging into your favorite stocks is another wonderful strategy to invest in a bear market. It’s impossible to know ahead of time when a bear market will occur, how long it’ll last, or how severe the decline will be. Every correction, however, is eventually erased by a bull market resurgence. This makes bear markets and double-digit percentage declines the ideal time to put your money to work since they’re lasting for years at a time.
Dollar-cost averaging is a technique for taking the emotional aspect out of investing and putting money to work in your favorite equities on a regular basis, no matter the price, or at specified share-price points. Edging into stocks you like gradually can help you build a position without feeling guilty about buying too soon or at an unfavorable price.
Another advantage of dollar-cost averaging is that the major indexes tend to appreciate in value over time. If you took the previous data from Crestmont Research to heart and implemented dollar-cost averaging, you’ll have a decent chance of accumulating wealth over time.
Consider basic defensive stocks
If you’re searching for a more specialized bear market investment approach, buying stocks that offer a basic need good or service, or operate in defensive sectors or industries, is usually a smart decision.
NextEra Energy is an excellent illustration of this concept. In 19 of the past 20 years, electric utility stock NextEra Energy has posted a positive total return, including dividends. Because demand for electricity does not vary much from year to year, the company may predict its operating cash flow accurately every year, which comes in handy when it comes to spending funds on new infrastructure projects or acquisitions. If the stock market falls further, NextEra’s operational success should not be harmed.
Another excellent example is the healthcare conglomerate, Johnson & Johnson. Since individuals can’t be certain when they’ll become sick or what sicknesses they’ll acquire, there will always be a demand for prescription drugs, medical devices, healthcare goods, and services. People don’t just stop getting ill or receiving treatment because of a bear market; as a result, J&J is able to increase its adjusted earnings by almost every year.
Johnson & Johnson is one of just two publicly traded firms to receive an AAA credit rating from Standard & Poor’s (S&P). It’s the top credit rating S&P gives out, and it’s a notch higher than the federal government in the United States (AA). To put it another way, S&P has more confidence in J&J paying back its obligations than it does in the federal government repaying its outstanding debts.
Focus on growth stocks
If you enjoy investing in growth stocks, you’ve had a great run over the last 13 years. Growth equities have outperformed value stocks throughout the Great Recession, with historically low lending rates paving the road for fast-paced businesses to hire, acquire, and develop. But did you realize that growth equities have a proclivity for outdoing during an economic downturn?
Growth stocks outperformed value stocks by an average of 17 percent per year over a 90-year stretch (1926-2015), according to Bank of America/Merrill Lynch. Value equities outpaced growth equities with an average annual increase of 17% compared to 12.6 percent. Even though interest rates are starting to climb, lending rates are still far lower than historical standards, which is beneficial for fast-growing firms.
Advertisements have a lot of power, and they can make or break your campaign. For example, Meta Platforms (META 3.43%), the firm that owns Facebook, Instagram, WhatsApp, and Facebook Messenger among other popular social media assets, has delivered double-digit annual sales growth looking back as far as possible. During 2020’s epidemic peak, when Meta’s mostly ad-driven business model yielded 22 percent year-over-year revenue growth from its broad range of offers for advertisers. Because advertisers know that Meta delivers them the best chance of any social networking platform to reach the most number of people possible, it’s a no-brainer purchase in a bear market.
Buy dividend stocks
The fifth and final suggestion in our best bear market investing strategies is to invest in dividend stocks. JPMorgan Chase’s J.P. Morgan Asset Management, a portion of the money-center bank, unveiled research comparing dividend-paying businesses to those that didn’t pay a dividend for four decades (1972-2012). Relatively speaking, it came as no surprise that the dividend stocks excelled over the non-dividend payment companies. Income equities returned 9.5% per year on average during 40 years compared to 1.6% per year for stocks that did not pay a dividend.
Although the magnitude of this outperformance might be surprising, the conclusion isn’t. Businesses that pay dividends are frequently profitable on a recurring basis, have time-tested track records, and have clear long-term growth prospects. They’re exactly the type of firms that should appreciate in value over time, and investors shouldn’t have to worry about during a bear market.
Take Philip Morris International as an example. Despite the fact that tobacco isn’t the growth story it once was, tobacco stocks like Philip Morris continue to provide value for their investors. Since its spinoff from Altria Group 14 years ago, Philip Morris’ shares have risen by 100 percent. However, if you include the firm’s generous dividend, the total return soars to 284%. Furthermore, Philip Morris has considerable pricing power and is present in over 180 countries worldwide. A bear market pullback won’t stop the firm from marketing tobacco and heated tobacco products to customers.
We hope that you enjoyed this article on the best bear market investing strategies in 2022. If you did, you might also like to check out best NFT rarity tools to help you invest, or how to make a pitch deck attractive to tech investors.