The best time for passive investing is in a bear market. Indispensable consumer goods tend to perform well during market downturns. Investing in the bear market can be scary but with a well-thought out investor strategy, you will be presented with profitable buying opportunities.
As stock prices fall, it can be brutal for investors. They might see their portfolios shrink but a good investor strategy will hold them in good stead. Ace investor Cathie Wood is a study in bold and unapologetic investing.
Passive Investing
If you own good dividend-paying stocks, bear markets can be the answer to your prayers. In passive investing, savvy investors buy up stocks and securities to hold in the long term. The current stock market fall has spooked traders and investors alike.
Experts advise that when the market goes down it is best to indulge in passive investing, by putting money away for the long term. One way to do this is by buying securities that mirror stock market indexes. This helps reduce risk as you are not investing in just one individual stock, rather a mixed asset class.
Terry Sandven, chief equity strategist at US Bank Wealth Management told Yahoo Finance, “History shows investors with long time horizons tend to experience favorable returns as the year-to-year gyrations of returns, both positive and negative, get smoothed out of the longer time period. This applies to both active and passive investment styles.”
Passive investing is mainly focused on building wealth over a period of time. By holding on to securities that mirror stock market indexes, you give it time to mature and reap rewards over time. According to a 2021 Gallup Investor Optimism Index, 71% of US. investors surveyed said passive investing was a better strategy for long-term investors who want the best returns.
So, what is active investing? Unlike the MO for passive investing, in active investing you buy and sell stocks by timing the stock market. It is much faster and requires an active interest in the day-to-day operations of the market.
Investment Strategies
Any form of investing must be done keeping one’s financial goals in mind. For example, if you are planning to buy a smart TV a few months down the line, you might want to indulge in active investing. However, while planning to build your retirement account, you might consider investing in the bear market. The cost savings in a passive investment are massive and assure good returns over the years.
“Investors should always be choosy when investing, though in a climate of high uncertainty and lower expected returns, doing so becomes even more important,” Daniel Berkowitz, senior investment officer at Prudent Management Associates, told Yahoo Finance.
Investing in dividend-paying stocks is another investor strategy many don’t know about. You can use the dividends to reinvest in other stocks for higher yields and generate idle cash flow. It also gives a boost to your passive investment portfolio. Investing in the bear market is also an ideal time to turn cash-in-hand into a passive income stream.
As stock prices fall, investors can choose to put their cash into stocks that offer monthly or quarterly dividends at lower rates. Bear markets offer a lucrative opportunity to generate passive income by reinvesting dividends and cash on hand.
Large investors advise having a mixed strategy to meet both short-term and long-term goals. Although it might not always be possible to beat the market, it is possible to circumvent losses by holding the stocks or bonds in a market index such as the Standard & Poor’s 500 or the Dow Jones Industrial Average.
How one chooses to invest also depends largely on what kind of wealth they have access to and for someone who cannot afford to keep money aside, passive investing is not an option.
