Making Money In A Bear Market Is Possible With The Right Moves

It is important to understand that making money in a bear market, when the stock market is moving lower, is possible when the right bear market investments are made.  The traditional way that most stock market investors make money in the stock market is by buying stocks and hold them, hoping they will go higher as the economy grows and corporate profits accelerate.  Many stock market investors do not think of making money in a bear market.

While over long periods of time, the stock market and the stocks that comprise the stock market do go higher and make stock market investors who hold stocks money, long term stock market returns can be dramatically increased when stock market investors start making money in a bear market.  The hard part is figuring out when the stock market is entering a bear market, which is defined as a 20% or more selloff in the major stock market indexes.

Making Money In A Bear Market – Bear Market Investments That Make Money

While nobody knows for sure when the next bear market is lurking around the corner, keeping a keen eye on the economic cycle can provide clues as to when making bear market investments is prudent since the stock market typically falls dramatically while the economy is entering a recession and during the first half a recession.

The following bear market investments make sense either just before the economy starts contracting and enters into a recession or during the first few months of a recession.  If you make these bear market investment too late into the recession, you can get burned badly if the stock market turns around in anticipation of an economic recovery.

Bear Market Investments Ideas

• Short Stocks – This is especially effective with high flyer stocks that are hit hard when the economy sours.  See How To Short a Stock for more details on shorting stocks
• Buy Put Options on Market Indexes – Buying put options on market indexes can result in handsome profits during bear markets.  The risks associated with buying put options should be well understood before making this investment.
• Buy an Exchange Traded Fund (ETF) That Mirrors The Volatility Index (VIX) – Bear markets cause a spike in the Volatility Index (VIX), which tracks the number of put and call options that are purchased in the stock market.  Buying an ETF that mirrors the VIX can be profitable going into a bear market.
• Buy Defensive Stocks – Certain sectors of the stock market do well or at least hold up well during bear markets, including consumer staple stocks and utilities, because people still buy consumer products like toothpaste during a recession and they still need to provide lighting and heating for their homes.
• Buy Bear Market Mutual Funds – Bear market mutual funds are designed to make money in a bear market by making investments in derivatives and short positions that go up during down markets.

While making money in a bear market is possible with the above investment strategies, it is important to close out your bear market investments towards the middle of a recession, since the stock market usually reaches a bottom and starts recovering at this point in anticipation of a recovery in the economy.

To learn more about how the stock market works, see: Stock Market Advice – Definitions and Strategies, How to Play The Stock Market, and Advice on Stocks – Definitions and Valuation Methods.

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