What is it and how do I invest correctly? [Anzeige]

Recognizing a bear market correctly

Since not every price drop immediately means that we are in a bear market, there are different ways to correctly identify a bear market:

• 2 percent rule: A bear market is when there is a 2% month-over-month drop from the last bull market high to the bear market low. An example of this is the bear market in the 1970s in the S&P 500.
• One-Thirds/Two-Thirds Rule: Indicative of a bear market is that two-thirds of the total decline in price has occurred in the last third in time.
• 20 percent rule: If prices have fallen by 20 percent in the last few months, that also speaks for a bear market.

But what actually triggers a bear market? The past has shown that a bear market is often triggered by pandemics, economic crises, wars or civil unrest. However, it can also happen that investors allow themselves to be influenced by falling prices and this creates an unexpected momentum of its own.

How do I invest in a bear market?

The most important rule during a bear market is: stay calm and don’t panic. In general, a bear market is significantly shorter than a bull market, averaging 1.5 years. And that means at the same time that falling prices are usually followed by rising prices again.

Stocks and ETFs should only be bought before and during the bear market if you have researched the company and its performance. A good strategy is the most important thing. For example, you can use the average cost effect: Invest a fixed amount at fixed intervals, e.g. with savings plans. The falling prices allow your average cost to go down and allow you to acquire more shares in the company.

Or you focus on companies that pay dividends. This allows you to continue to receive dividends during a bear market, which you can then continue to invest. But ETFs and stocks that are currently going against the market can also be a good investment opportunity. Below we show you a few examples:

• VXX: Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN
• UVXY: ProShares Ultra VIX Short Term Futures ETF
• SQQQ: ProShares UltraPro Short QQQ ETF
• TZA: Direxion Daily Small Cap Bear 3X ETF
• FAZ: Direxion Daily Financial Bear 3x Shares ETF

Invest in stocks and ETFs with eToro

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