The recession is hopefully behind us now, but it is important to learn some lessons from it so that you can invest more wisely when the next bear market comes. A lot of people lost large proportions of their investments in the stock market crash of 2008. However, that does not mean it is impossible to protect your money when the times are rough. Here are some tips to shield your investments from the next bear market.
Separate Long-Term and Short Term Investments
The stock market is inherently risky and it just does not make any sense to invest all your savings in such a volatile market. Most financial experts advise that you should separate your investments into two groups – one with a long-term horizon and the second with a short term horizon. Long-term investments should be kept in safe assets like trusted blue chip companies and fixed income assets like high yield deposits and bonds.
On the other hand, you can take some risks with your short term savings if you believe that the potential returns will be worth it. Even though your short term investments will be speculative in nature, it does not mean that you have to gamble your money away. So even if you are investing with a short term horizon, always follow some basic principles of minimizing risk. For example, you can diversify your portfolio to spread the risk.
Markets are Cyclical
The economy and the stock markets tend to be cyclical in nature. This means that a boom in the markets will be followed by a recession and vice versa. So even if your investments take a hit, you should be patient, as the market is not always going to stay down. It also means that when everyone is predicting a bleak future, you should know that a recovery is always on the horizon. Think about the people who invested in the market when it was at its bottom in 2008-09. Their investments would have given more than 60% returns by now.
Shut Out the Noise
Finally, you should remember that on the stock market, every analyst pretends to be a prophet. The so-called experts could not predict the recession and they could not predict the recovery either. So never let their opinions bother you too much. Don’t lose sight of the basic rules of investing, no matter how much noise the experts are making.