In bear markets, investors see huge chunks of value shaved from the securities they own. While many investment strategies are equipped for weathering the losses incurred throughout the business cycle, they cannot always hedge against downturns as large as bear markets.
Shares that lose value too much, too soon during a bear market can be costly for investors. A drop of more than 40% of a share’s value, for instance, would require a rise in value of 67% to recoup the losses. The turnaround cannot always be counted on even when markets recover. Typically, investors often must cut their losses during a bear, which means dropping poorly performing investments before they hemorrhage value.
For many average investors, prevention is the key to surviving a downturn as big as a bear market. The adage of putting eggs in more than one basket is in play. A diversified investment portfolio ideally shouldn’t just consist of stocks, not even during more bullish times when the gains from shares are intermittently more lucrative.
Investment products that make great hedges against bear market include fixed-income annuities, which provide no loss of principal while providing ways to track and lock in gains. Although their growth potential isn’t as high, they provide a good hedge against abrupt market fluctuations.
A widely-regarded innovator in the field of financial services, Barry Bulakites is co-founder, president, and chief distribution officer for Table Bay Financial Network and is one of the industry’s most sought-after speaker. Learn more about his company and its services from this website.
