Where Do I Invest During a Bear Market?
A question that is being asked by almost every novice investor is “where do I invest during a bear market?” The first thing that you need to realize is there is a difference in a secular bear market and a cyclical bear market. What is the different you may ask.
A secular market is a trend that lasts over a decade, often between 12 and 20 years. When the stock market goes into a secular bear market over the last 100 years, it tends to grind sideways or down for over a decade making a return on investment minimal or negative. The current stock market has been in a secular bear market since 2000 when the dot com bubble burst and we have grinded sideways to lower ever since. Do not expect this secular bear market to end anytime soon as it is less than 9 years in age.
A cyclical market is a trend that is created by a cycle and usually lasts from two to five years. During the secular bear market we have seen a cyclical bear from 2000 to 2002 followed by a cyclical bull from 2002 to 2007 followed by a cyclical bear from 2007 to present. So, in essence, it has been cyclical bear, cyclical bull, cyclical bear, then….you got it, cyclical bull! We are currently waiting for the current cyclical bear to end which it seems to be trying to do right now.
With that in mind, it is a tough time to answer the question “where do I invest during a bear market?” If you are asking the question, “where do i invest during a SECULAR bear market?” then there is a very easy answer. Commodities. While the stock market is in a secular bear market, commodities always outperform. If you were alive during the 1970s, you remember the stock market bear during the commodities bull run. The same is happening today. Yes, commodities have been down over the last year, but they are still up greatly when compared to stocks over the last nine years.
The easiest way to invest in commodities is to buy an ETF in the following:
- DBC – tracks the entire commodities spectrum
- DBB – tracks the base metals commodities
- DBP – tracks the precious metals commodities
- DBA – tracks argiculture commodities
- DBE – tracks energy commodities
If you are asking the question “where do I invest during a cyclical bear market?” then this is a much tougher analysis. If you feel we are going to remain in this cyclical bear market even after a 52% decline in the S&P 500, then investing in anything American is not for you. If you feel that things are going to turn around and America will prosper, the time is perfect to buy American equities.
Fortunes are made when analysts are overly bearish and everyone on main street is bearish. There is no better time to go against the trend than today right? All the headlines read that the stock market has closed at its lowest levels since 1996. If you have money, do not invest it in the stock market seems to be another “buzz” headline lately. This should tell you one thing for certain. Invest in the stock market! When everyone is telling you one thing, go in the total opposite direction and you will make a lot of money over the course of your lifetime.
So, you need to analyze where you stand. If you are a long term investor that wants to let the secular bear market play its way out, then you should invest in commodities. Commodities should see huge gains in the next several years as money will feed into them as many investors are looking for the next “hot” investment. If you are a contrarian and are looking for value, now is a great time to buy American stocks. Be careful with what you buy and make sure to stay away from the banks. To get the best of both worlds, buying commodities companies might provide the biggest return over the next several years.
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