5 mistakes many investors make in a bear market

Going by the technical definition, Indian markets have not yet entered a bear phase. A decline of more than 20% from the peak is considered a bear market and the Nifty has fallen only 17.5% from its 52-week peak of 18,604 in October 2021.It’s impossible to predict if the markets will indeed fall below the 20% threshold next week. Some experts say the markets are oversold and expect a sharp rebound once the Nifty rises above the 15,500 mark. Others believe the short-term pain will continue for some more time because inflation is unabated, geopolitical worries are far from over, FIIs continue to withdraw from Indian equities and global markets are in a shambles. !function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r Whatever be the trajectory of the markets, the truth is that bull markets make investors happy, while bear markets make them rich. That’s why the best investments are made during bear markets and worst mistakes during bull runs. When you buy stocks at beaten down prices, there is a margin of safety.When you invest in stocks, a lot depends on how soon you need the money. If your financial goal is 8-10 years away, you are on dry ground. But if you need the money in the next 1-2 years, it’s best to avoid equities. There is no knowing how long a bear market will last.Downturns can be especially devastating for retirees who depend entirely on their investments for income. They don’t have the luxury of time and cannot afford to wait for the bulls to return. If they don’t have a buffer, they will be forced to sell at low prices to be able to sustain themselves.Unfortunately, not all small investors are hard wired to gain from downturns. Most of them lose their nerve when stock prices tumble. They also tend to make the usual mistakes of over-leveraging, not diversifying and buying stocks on the basis of unconfirmed tips. medium92337857Common mistakes to avoidStop SIPs: Don’t stop mutual fund SIPs when markets are down. You lose the very advantage that the SIP offers by averaging out the cost of purchase.Leverage investments: Leveraged bets can be devastating when markets drift down. If you buy stocks directly, invest only in the cash segment, not F&O.Bet on penny stocks: Small-cap stocks can be very rewarding but don’t get lured into buying obscure scrips or low-priced penny stocks. medium92337907Concentrate exposure: Diversify your investments across at least 3-4 stocks and sectors. Betting too much on a single stock or sector can be risky.Take short-term view: When you buy stocks and equity funds, invest for at least 4-5 years. Don’t invest money which might be required in the next 1-2 years. Put it in short-term debt fundsor bank deposits.Are you prepared for a bear market?An investor must have the right attitude and financial discipline to gain from a bear market. Take this test to know if you are financially and psychologically prepared for a downturn in the equity markets. medium92336655 medium92336687Your bear market readiness scorecard28-32 points: Congratulations. You are well prepared to take advantage of a bearish phase. Your financial situation is comfortable and you have the right mindset for long-term investments in equities.20-27 points: You are fairly well prepared for a bear market but will need to increase your risk tolerance and take a long-term perspective when investing. A buffer of cash will come in handy.12-19 points: Your risk tolerance is low so a bear market could upset your plans. Reduce exposure to stocks before the bearishness sets in. Rely on mutual funds and avoid investing in stocks on your own.Less than 12 points: A bear market could prove devastating for you. It will be better if you shift to the safety of fixed-income options or take help from a financial planner in managing your investments.