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December 5, 2007
Living through a bear market
Don’t be tempted to invest in “bear funds” to “make a fast buck during the downturn,” says Chuck Jaffe in MarketWatch. Some bear-market funds “are appropriate tools for average investors,” if held as a long-term hedge against falling markets, but investing in one now is a fool’s game. Most people can’t stomach these volatile funds, and when you baldly bet against the market, you usually lose. If you want to “diversify aggressively,” it’s safer to invest in sectors you think will profit a market slump. Or just stick with your diversified fund portfolio. After all, “it’s not like the traditional fund manager is trying to lose money in a down market.”
Actually, bear markets are good for most long-term investors, says Steven Goldberg in Kiplinger.com. Because your money buys more shares when stock prices fall, “you’re actually building up more equity during a bear market than when the market is soaring.” The best and “most emotionally easy” way to profit in a slump is through “dollar-cost averaging,” or putting a little bit in the market each month, “regardless of how bleak the headlines are.” Try it—it “works like magic” in volatile markets. And “cheer up.” Living through bear markets “is not fun,” but “they really are good for your bottom line.”
of The Week magazine.