When the market falls more than 20% from its most recent peak, we say that markets have turned bearish. Due to the Russia-Ukraine conflict and inflation dogging stocks worldwide, major global indices like the Nasdaq had collapsed in the past. However, our Indian markets didn’t get into bear territory though it fell close to 15% from its peak due to pumped-in liquidity. However, Indian markets, despite being strong, are also susceptible to fall if the global sentiments go bad. Unlike any free stock market webinar, this blog will entirely cover how to invest in bear market in India?
Lower your expectations:
In 2021, the Nifty rose 71%, which is relatively much higher than the average of 17%. This run-up was mainly due to the liquidity pumped by the central bank. Any euphoria would cool down, and an investor should expect only average returns from the market in the long term.
As you can see in the chart, the return in 2021 was the highest in one whole decade. However, you can least expect double-digit stock returns in a bear market if you haven’t learnt from any stock market paid course. Your portfolio would rise in a bull market but is more susceptible to losses if a bear market comes.
However, for uneducated investors, a bear market might wipe out their complete portfolio. In a bear market, one could meet goals with different assets like bonds, fixed deposits, short-term debt funds, and gold. Thus, one should expect a single digit return in this period and reduce their expectations of high returns rather than running after multibagger returns as told in many stock market webinar. Before knowing how to invest in bear market in India, one must understand bear market first.
Patience is the key:
As per stock market paid course online, a bear cycle generally takes 6 months to 7 years to cool down. If we look at the Sensex data since 1986, it takes around 30 months for a bear market to end. In the image below, you can see how much time the Indian and American stock markets took to recover from various black swan events and how much the market fell.
For your short-term goals that require money in the next 1-3 years, a bear market wouldn’t help you achieve them. For such short-term goals, as per the best stock market paid course, debt mutual funds or fixed deposits would suit better in such market conditions. Asset allocation is the most important thing one has to follow. The risk is relatively high if an investor has to go all in equity. One should start understanding this before making such a decision.
Stay away from Noise!
Heeding to this market noise is not good as this leads to short-term thinking and overreaction, affecting your long-term portfolio gains. Analyzing every event, assessing its implications on your portfolio, and trying to time the market can be mindless.
As per many stock market courses online free with certificate, investing is the only domain where some ignorance is bliss. Knowing the daily market movements, watching financial news, and reading the latest headlines are only valuable if you are a full-time investor.
If people could predict stock prices and economies, we would read about them being rich in the news, not shouting on business news channels. Listening to them is like investing based on astrology.
Magic of diversification
Market timing is tricky, even for students of the best stock market courses in India. That leaves us with the following best options – asset allocation and diversification. What would be the answer of how to invest in bear market in India?
The answer to it is a diversified portfolio of physical assets, stocks, debt instruments and bonds is critical to steer in every stage of any market cycle. Such a portfolio would fail to deliver the optimum return but has the optimum performance competitively across market cycles.
As you can see in the image, the table has 10 asset classes with their return performance for each calendar year in the 10 years from 2012 to 2021. As you can see in the image, a different asset class has performed well every other year. You have got to be extremely lucky to get it right. Predicting the best-performing asset class is pretty much a blind guess, not even for students of the best stock market courses in India.
But what if you held a diversified asset allocation portfolio instead of chasing the best-performing asset class? The last column is the returns of a hypothetical asset allocation of 60% equity (30/30 large & midcap), 30% corporate bonds, and 10% gold. This is how to invest in bear market in India!
Such portfolios might deliver a lower return in any given year but will perform competitively across market cycles.
Checking your portfolio often is a good way to lose money
Myopic loss aversion was first introduced by Daniel Kahneman and Amos Tversky in 1984. This study of behavioural finance states that people dislike losing money more than they like making it. In other words, we feel the pain of a loss much more deeply than the happiness of earning. This is often taught in stock market courses online free with certificate.
Investors who check their portfolios often perceive investing as riskier than those who don’t. According to Betterment’s data on login frequency, checking your portfolio quarterly instead of daily can reduce the chance of seeing a moderate loss (of -2% or more) from 25% to 12%. Research proves that investor behaviour is the leading cause of underperformance and contributes to poor performance over the long term. Therefore, avoid checking your portfolio often and believe in long-term investing. Even Online Stock Market Courses in India don’trecommend watching investment portfolio every day.
As a fact and lesson of the best Online Stock Market Courses in India, markets rise and fall, and they can fall quite a bit too. Good times don’t last forever, and neither do the bad times—it’s a cycle. NiftyBeEs is one of the oldest ETF funds in India, around 20 years old. If you had started a SIP at launch, you would’ve generated about 15%. Sounds nice. But you would’ve endured a 50% crash, several 20-30% falls, and several years of 0% returns.
In short, there have been several bear markets in Indian markets. Some popular ones include the great recession of 2008, the stagnation and high inflation era of 2010-2013, shallower bear markets such as 2015-17 due to demonetization and GST implementation that affected economic growth, Covid 19 crash, or the crash because of the latest Russia-Ukraine conflict. Investors must learn to weather such markets and not be discouraged. In the long run, stocks compensate for their years of stagnation by rallying sharply in bull phases. To know how to invest in bear market in India, one can even think to enrol into a stock market paid course online.