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Le marché baissier expliqué : tout ce que vous devriez savoir
While the idea of a bull market may trigger the instincts of seasoned investors, the term “bear market” may scare off novice investors who associate it with losses. A market is said to be “bearish” when it experiences prolonged rate cuts. When rates fall by more than 20%, it often triggers negative sentiment among investors as well as a deterioration in the economic outlook. Bear markets can be cyclical or longer term. If the first extend over a few weeks or a few months, the second can last several years, even decades.
The global COVID-19 pandemic obviously represents a concrete example of a bear market. Fears over the spread of the virus sent global economies into a downward spiral, tipping markets into bearish mode in early to mid-2020. According to Forbes, as of March 23, 2020, the S&P 500 had fell 34% to 2,237.40. This drop is one of the worst in the history of the index. The index did not cross the 3,000 mark until May 27, 2020, when it reached 3,036.13 and started to climb again.
Other examples include wars, geopolitical crises, the bursting of speculative bubbles, and drastic paradigm shifts that lead to lower investor confidence and may signal the start of a bear market. Fear and mimetic behavior can exacerbate declines, as the eagerness to hedge against losses in this case can lead to long periods of declining asset values. As growth prospects slow and expectations dim , stock prices may decline accordingly.
Bear markets can last from a few weeks to several years. Recoveries can occur in long-term bear markets, which is when stocks or indices follow an upward trajectory for a period of time. However, the markets do not sustain these gains, and prices fall back lower. This up/down market trend is known as the “long-term bear market”. On the other hand, a market that can last from a few weeks to several months is called a “cyclical bear market”.
Depending on the investor, the two markets can lead to different results. However, it is important to note that bear markets generally have four distinct phases and that it is necessary to differentiate between them to protect your portfolio.
The four phases of a bear market
- High prices cause investors to abandon the need to generate profits.
- Stock prices begin to fall sharply due to declining business activity and corporate earnings.
- Economic indicators are slipping below average, and speculators are entering the market to profit.
- Stock prices continue to decline slowly, and the good news is prompting investors to invest.
How to invest in a bear market
Some investors choose to profit in a bear market by selling short. Short selling allows investors to borrow shares from a broker before the order is placed, sell them, and then buy them back at a lower price. The amount between the buy price and the sell price is what investors can get back as profit. Investors can also use put options and inverse exchange-traded funds (ETFs) to earn profits or use the following methods:
1. Diversification of investments
The best strategy to offset losses in a bear market is to combine different assets. Shifting profits into shares of gold mining companies or commodities such as gold provides a more consistent return and builds a defense against losses in a portfolio. Gold bonds are also attractive, as they often fluctuate inversely to stock prices.
2. Looking for attractive sectors in gold
Investing in specific sectors through index funds or ETFs provides exposure to companies and provides greater diversification than investing in a single stock, as each fund holds shares of many companies.
3. Periodic purchases by fixed sums
Periodic purchases by fixed sums consist of investing money continuously over time and in roughly equal amounts. This not only makes it possible to regularize the purchase price over time, but also to avoid investing all your money in an action at the highest level.
Why It’s Good to Invest in Gold in a Bear Market
The general rule is to always include 5-10% gold and gold investments in your portfolio. It acts as a third asset class and helps diversify a portfolio, making it a hedge.
Concerns about rising debt levels and inflation are boosting gold as investors view it as a long-term safe bet. Also, a limited supply, or scarcity, of gold means that the price will always be higher than the produced currency at low interest rates. When companies weaken during a financial crisis and bankruptcies mount during a recession, investors who own gold can protect themselves from risk. Also, it retains better value in times of uncertainty, so investors can liquidate it quickly to raise cash.
While the benefits are many, there is always a risk. Gold is not immune to liquidations, even if they are unlikely. Traditional assets like gold become attractive in a bear market and that is when it becomes expensive to acquire them. In addition, the scarcity sometimes makes it difficult to buy large quantities. Gold traders may encounter difficulties in obtaining physical coins and bars, which forces them to charge higher premiums than usual. Although gold prices are stable over the long term, they can fluctuate rapidly due to ambient instability. However, diversifying a portfolio into stocks, ETFs and other gold futures options can help avoid unnecessary losses.
What you must remember
Signs of a bear market can appear at any time, but this should not lead to a sudden change in investment strategy. Long-term investors should look at history, but not rely too heavily on it to predict the market. Instead, make sure your portfolio is deep, with a cash base you won’t need for the next five years, and make sure it’s both well-diversified and matched to your cash tolerance. risk. By doing so, you are likely to weather market fluctuations better than someone trying to predict everything.
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