Stock markets, bull markets, bear markets — oh my!
It’s easy to feel powerless when the financial discussion turns to terms like these. And today, these terms are part of the discussion quite often.
But there is a way to gain back some of your power through knowledge. Knowledge about what these terms truly mean and knowledge about how you can protect your portfolio when the markets feel out of control.
Allow us to share that knowledge with you right now.
We’re in a Bear Market — But What is That Exactly?
First, let’s address the popular phrases most investors are hearing right now: bear market and bull market.
In terms of the U.S. stock market, “bear market” is the phrase you’ll hear when stocks across the board experience a long-term decline in pricing.
While there are different ways to identify a bear market, a common definition is that it’s one in which the average price of stocks has fallen 20% or more over two months, or longer. Secular bear markets last a decade or longer while shorter-term cyclical bear markets can stretch from just weeks to months.
Bear markets are typically marked by pessimistic sentiments and pronounced risk-aversion among investors. There are different reasons bear markets start, including a weak or suddenly-slowed economy, global crises, and other drastic situations. A bear market might signal a significant shift coming, such as an economic downturn or a full-blown recession.
On the flip side is a bull market. A bull market is marked by investor optimism, confidence, and perhaps a sprinkle of speculation as strong returns are expected to continue.
A bull market begins in the U.S. stock market when the average stock price rises by 20% after two 20% declines. Prices typically continue to go up as the bull market continues.
Bull markets are especially difficult to predict, but they often begin after the economy and/or gross domestic product (GDP) takes an upward turn, unemployment drops, and corporate profits rise.
After the longest bull market in its history (beginning March 2009), the Dow Jones Industrial Average and S&P 500 indexes both dropped into a bear market in March 2020. This change was caused by a sudden drop in stock prices due to the COVID-19 pandemic outbreak.
After some high highs and low lows over the years since then, many financial thought leaders believe we’re once again in a bear market in summer 2022. And this time, it may be the harbinger of something bigger.
Is an Economic Recession Coming?
Now for another important term investors oughta know: recession.
A recession can be defined by two consecutive quarters of negative GDP change, but more generally speaking it’s just about any time economic change is going down instead of going up. Many recessions are mostly caused by declining investments and spending, which we’re seeing today as the Consumer Price Index (CPI) reaches its highest rate in 40 years thanks to soaring inflation and the Fed’s increased interest rates that aim to keep it in check.
At this point, most sources say we’re not currently in a recession, but with suppressed spending, an underperforming stock market, and the resulting consumer pessimism — economists say it seems quite likely one is on the horizon.
Recession-Proof Your Portfolio With These Asset Types
With the possibility of a recession looming large, it might be time to make some additions to your investment strategy.
While “recession-proof” is a bit of a misnomer, there are some types of assets investors can bring in to protect their portfolios and continue generating returns.
Dividend stocks share a portion of company profits with stockholders based on how many stocks they hold. As long as the company continues to turn a profit, dividend stocks can generate cash flow even during a recession.
Additionally, there are exchange-traded funds (ETFs). These funds invest in companies with a track record for solid dividend payouts.
Bonds are somewhat similar to dividend stocks because of the cash payouts they grant to investors over time.
Bonds are issued in return for what’s basically a loan. Investors who provide funds are paid back the interest on those funds over a period of time. Once the bond matures, an investor will also be paid back their initial investment amount.
Bonds also offer an option to generate fast cash. They can be sold to other investors via a secondary market.
Core Sector Stocks
You don’t have to give up on stocks during a recession. Businesses in some sectors will continue to generate returns even during economic downturns, such as healthcare, electricity, steel, food, and other business and consumer staples that are always in demand among industries and individuals.
Brick-and-mortar businesses will always need a space to rent, and people will always need somewhere to live. In addition, the value of real estate actually tends to increase along with inflation — making it a powerful resource for diversification and cash flow despite a slow U.S. economy.
The best thing to hit the real estate asset class in a long time are real estate investment trusts (REITs). These trusts typically pool investor money, purchase properties, then manage them to generate and pay out returns back to the investors. This is a great option for investors who don’t fancy adding “landlord” to their list of roles.
Read our guide to Yieldstreet vs. Fundrise: Add Real Estate to Your Portfolio to get started with real estate investing.
Not unlike real estate assets, prices for precious metals (gold, silver, platinum, etc.) also go up during tough economic times thanks to increased demand.
And in another similarity to real estate, you can buy precious metals themselves or invest in ETFs that invest in the metals market. For those with their sights set on investing for retirement, gold IRAs are also an option.
3 Tactics for Staying Afloat Through an Economic Downturn
It’s not only about the assets when it comes to keeping your portfolio healthy during a bear market and even a recession. There are some tactical shifts you can make, as well. Here are just three tricks that will help you stay on track toward your goals — and perhaps more importantly help you stay sane — come what may.
Get an Informed Bird’s Eye View
You’ve likely heard the phrase “time in the market is better than timing the market.”
But boy is it hard to keep from selling when you’ve watched returns drop and asset values sink week after week after week.
If you find yourself itching to take action at early signs of portfolio trouble, we urge you to find a way to get a broader, longer-term view of your portfolio.
Kubera is smart personal balance sheet software that empowers modern investors to focus on their big-picture strategies instead of getting distracted by individual movements.
With just a little upfront work, modern investors can use Kubera’s portfolio tracker to make smart, strategic decisions instead of knee-jerk reactions to bad market days.
All you need to do is get your entire portfolio of assets loaded into Kubera, which we’ve made as easy as possible through our custom platform that integrates with thousands of financial institutions — view just some of them here.
Get started by adding all your account-based assets (bank and savings accounts, brokerage profiles, crypto wallets, mortgages and loans, etc.) to Kubera. The platform will reflect all of the changes within these accounts in real-time.
Next, use Kubera’s clean, modern interface to keep track of assets that don’t have an online account, like collectible investments, family heirlooms, art, metals and jewelry, cash, etc.
Finally, employ Kubera’s stock market and cryptocurrency tickers and our integrations with Zillow, EstiBot, and more tools to get a full grasp of the value of all your assets.
Once Kubera is tracking all of your assets, you can get a better idea of how they’re generating returns with our feature that automatically calculates IRR for investments.
Kubera takes an asset’s current value, purchase price, cash flow, and holding period to find its internal rate of return (IRR) — which is like ROI, but more accurate. In addition to providing IRR in your preferred currency, it also displays how benchmark indices and stocks are performing so you can understand how your returns hold up on a larger scale.
Read our help center article to see Kubera’s IRR calculator in action.
If you have a ton of assets to keep track of, you’ll especially like this next feature.
Kubera’s recap screen crunches your data to give you an easy-to-digest breakdown of net worth as well as individual asset performance. You can get granular by watching daily performance or gain a more informed view of performance over time with our yearly breakdown.
View all of these features and more on our how Kubera works page.
With just a few hours of work, you’ll be able to use Kubera to view the performance of your entire portfolio and individual allocations over time, so you can make accurate forecasts and decisions that align with your goals and risk tolerance — not worry over ever-changing stock values, short-term crypto dips, and so on.
Don’t Blow Up Your Long-Term Investment Strategy
Since World War Two, the U.S. has experienced about ten bear markets. On average, it’s taken investors just 14 months to recoup any losses from these downturns.
The lesson here is to hang on to your long-term strategy and don’t make any drastic, unresearched changes. In the scheme of things, just over a year isn’t very long at all to wait to break even.
With the bird’s eye view provided by a tool like Kubera, it’s easier to trust and see how your long-term strategy is holding up as well as how any changes you do choose to make will impact performance.
Focus on Diversification
If you must do something to keep yourself busy as a recession approaches, turn to diversification.
Portfolio diversification is the practice of adding a variety of non-correlated assets to your portfolio. This ensures that when the market negatively impacts one asset class, it won’t impact your whole portfolio in the same way. Diverse portfolios have been shown to outperform more homogenous ones.
Investing in asset types that move in the opposite direction of the stock market (like precious metals and real estate) as well as defensive stocks that tend to stay stable even as the economy shrinks (like shares in core sector businesses) will cushion your portfolio against heavy, permanent capital losses.
Start Recession-Proofing Your Portfolio with Kubera
There’s another really great Kubera feature we didn’t mention earlier that makes it the best first step you can take toward protecting your portfolio — its accessibility.
Kubera works on every desktop, iOS, and Android device and employs simple, affordable pricing. And, it’s even a match for you investors who work with financial advisors and wealth managers. All your financial pro needs to do is adopt our white-label solution to build out a modern client portal that will improve your experience.
Sign up for your subscription today and enjoy a preliminary free trial that gives you all the time you need to explore our robust suite of portfolio-protecting features.