Mid-June added another concern to 2022’s economic woes. Another day of heavy losses placed the S&P 500 stock market index officially in ‘bear market’ territory.
Among those within Wall Street, a bear market appears when an index like the S&P 500, Dow Jones, or even an individual stock falls by at least 20% from a recent high for a prolonged period.
Many across the world know 2022’s been a tough year economically. In early June 2022, the World Bank said global growth was estimated to decline from 5.7% in 2021 to 2.9% in 2021, much lower than the calculated 5.7%-4.1% decline projected in January.
No matter the economy, it’s vital to understand bear and bull markets and how you, as an investor, can best position yourself in either.
Bear Market Vs Bull Market; What’s The Deal?
Bear Markets – The Basics
In short, bear markets are sellers’ markets. Decreased optimism and a search for stability often lead investors to turn to fiat currencies and securities, like gold and silver. Adjusting investment strategies during bear markets is always wise to minimize loss. Emotions can also run high during bear markets. Many people turn to a financial advisor to help guide decisions and avoid panic buying or selling.
Many remember the 2007-2008 housing crisis or the 2000s dot com bubble as profound examples of bear markets. Yet, back in the history books, the Great Depression remains arguably the most famous bear market in the United States.
Bull Markets – The Basics
Bull markets are all about optimism. Technically, there’s not a formal metric that defines a bull market, but a common rule is where there’s at least a 20% increase from the most recent low price of an individual stock, an index like the S&P 500, or even real estate, bonds, and fiat currencies.
High consumer confidence often leads to a buyer’s market where investors remain enthusiastic about buying and holding securities. In addition, bull markets, like those seen after WW2, often come with low unemployment and other positive economic factors.
Investors in a bull market often opt for more stocks to reap a greater potential return. This is especially true if they can buy stock early on and sell it after it reaches a peak.
As Markets Move And Shift, Remaining Aware Is Key To Smart Investing
While markets constantly ebb and flow, understanding the differences between bear markets vs bull markets and how to adapt an investment portfolio remains essential for any investor.
Doing so reduces the risk of quick judgments and emotional decision-making. This practice ensures that investment decisions can be as rational as possible.
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