15 Reasons to Invest During a Bear Market
15 Reasons to Invest During a Bear Market
Time to buy?
2022 has been a dismal year for investors. Through Oct. 24, the S&P 500 is down 20%, and the broad market index has been in a bear market since June.
Rising interest rates, inflation at 40-year highs, and fears of a recession have combined to send stocks spiraling after a boom in 2020 and 2021.
But that's not necessarily bad news. If you're a net buyer of stocks, stock market sell-offs are good because they make them cheaper. Though it may seem like a scary time to invest, there are lot of reasons to buy stocks in a bear market. Keep reading to see 15 of them.
5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Previous
Next
1. Stocks are on sale
With most assets, buyers see a discount as a good thing. If the price of a TV or a house falls, you'd be more likely to buy them.
With stocks, on the other hand, investors tend to get scared away when prices fall. And though prices for stocks are more complicated than for retail products or even real estate, right now is a great time to buy good companies on sale.
For example, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the Google parent, now trades at a price-to-earnings ratio of just 18, its lowest in nearly a decade. That's a great price for a long-term outperformer.
ALSO READ: Alphabet Stock Can Double Your Money in 5 Years. Here's How.
Previous
Next
2. Every bear market has led to a bull market
In the U.S., every bear market has eventually been followed by a bull market, along with a new all-time high for the stock market.
That includes the Great Depression, the financial crisis, the energy crisis of the '70s, inflation in the '80s, 9/11, and even the COVID-19 pandemic, not to mention two world wars and several other armed conflicts.
There's no absolute guarantee that the stock market will reach an all-time high, but throughout history, the stock market has overcome greater challenges than the current one to return to growth.
Fears that the bear market will never end are misplaced.
Previous
Next
3. You can't time the market
If you're waiting for stocks to keep falling, you might end up waiting too long. Timing the market is basically impossible, and you'll never know when the market bottom will happen.
Rather than trying to time the market and hope you buy at the bottom, you're better off dollar-cost averaging into high-quality stocks that are well priced during the market sell-off.
Previous
Next
4. Be greedy when others are fearful
One of Warren Buffett's most famous aphorisms, this phrase concisely sums up the approach you want to take in a bear market: "Be greedy when others are fearful." It doesn't mean to buy stocks just because they are down. It means that you should recognize that stocks are down in part because of investor psychology. The future cash flows of the businesses in the S&P 500 didn't suddenly decline by 20%. Instead, a variety of factors, including market sentiment, have contributed to the sell-off.
Previous
Next
5. Dividend yields go up
If you're a dividend investor, now is a great time to buy stocks because dividend yields have gone up significantly during the pullback.
The dividend yield of the S&P 500, for example, has increased from 1.25% to 1.63%, and some stocks have seen their dividend yields skyrocket as the stock has fallen.
VF Corp (NYSE: VFC), the parent of Vans, Timberland, and North Face, has seen its dividend yield jump from less than 3% to 7.2% as the company cut its guidance. But over the long term, it still looks well positioned for steady growth.
5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Previous
Next
6. You can take advantage of deep discounts
If you want to buy stocks that will give you multibagger returns, the best time to do that is now, during a bear market.
While the broad market is down 20%, growth stocks have gotten hit even harder, and a number are down 90% or even more.
Roku (NASDAQ: ROKU), for example, is down nearly 90% from its peak last year. Though the streaming stock's revenue growth is expected to slow substantially in the current quarter, it's likely to recover once advertising demand comes back in the next bull market.
Previous
Next
7. Not every business is weak
The bear market might give you the impression that every stock is down. After all, if the broad-market index is down 20%, then most of its components are in the red, too. But some businesses are still thriving.
Airbnb (NASDAQ: ABNB), for example, posted 58% revenue growth in its second quarter, setting records in almost every category. The company has benefited from the travel recovery and should continue to post strong results in spite of the broad-market headwinds.
Previous
Next
8. It's a good time to dollar-cost average
Even the most seasoned investors practice dollar-cost averaging. In this form of investing, you invest a regular amount at steady intervals and buy stocks in stages, rather than all at once.
Dollar-cost averaging works well during bear markets because it eliminates the decision-making process from investing. You've already made the decision to invest in the market. Now all you have to do is follow your plan.
Previous
Next
9. It could be a rare opportunity
While it might seem like a scary time to invest, it also could be a short-lived, opportune moment to buy stocks on the cheap.
After all, aside from the brief bear market during the pandemic, you have to go back more than 13 years to the financial crisis.
As Warren Buffett said, "If it's raining gold, put out a bucket, not a thimble." Great opportunities don't come along that often in the stock market. When you see one, take advantage of it.
Previous
Next
10. You have a long time horizon
If you're retired or planning to retire soon, a bear market could be a problem as it eats into the nest egg you're planning to use to fund your retirement.
However, if you're a younger investor with a longer time horizon, then a bear market is actually a good thing since it gives you an opportunity to buy stocks on the cheap. As a net buyer of stocks, you're in a good position to take advantage of a sell-off.
5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Previous
Next
11. The sell-off is partly based on fear
Market sentiment drives a lot of investor behavior in the stock market, and that's been especially true over the past few years since the pandemic began.
Buying tends to beget more buying, and selling begets more selling, as we've seen this year. However, market sentiment can change quickly, and when it does, many of those hard-hit growth stocks are likely to bounce back.
Don't let the market's fear factor scare you out of a good buy.
Previous
Next
12. Interest rates will stabilize
The main reason for the current bear market is persistent inflation, which the Federal Reserve has countered by raising interest rates.
Though the Fed has been aggressively raising rates, the central bank is likely to take its foot off the gas pedal soon as it doesn't want to overcorrect on interest rates and crash the economy. Once the pace of interest rate hikes slows, stocks are likely to react favorably.
Previous
Next
13. The best investors do it
The best investors know that bear markets offer opportunity, and more sophisticated and wealthier investors tend to take advantage of bear markets to hunt for bargains and buy stocks on the cheap. Retail investors, on the other hand, have a history of being scared out of the market.
A number of stocks, for example, skyrocketed during the pandemic, and though many have given back their gains, the earlier performance shows the kind of returns you can get from buying when stocks are down.
Previous
Next
14. It could be over soon
According to one measurement, the average length of a bear market is just 9.6 months. In other words, this bear market, which began in June, is already more than four months old, or about half the length of a typical bear market.
And the good news is that in order for the bear market to end, another bull market has to start, so the stock market bottom should come in even less time than 9.6 months.
ALSO READ: How Long Will the Bear Market Last? Here's What History Says
Previous
Next
15. It'll probably pay off
Ultimately, there are two components to making a good stock purchase: buying the right stock and buying it at the right time.
Of those two, it's better to choose a good company, but buying at a good price is also important. The current bear market, therefore, with prices down significantly, presents a good opportunity to buy most stock, and you probably won't regret it in a few years.
5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Previous
Next
Take advantage
Though bear markets are hard to stomach for investors, there's a silver lining to your declining portfolio value. Stocks are cheap, making it a great time to buy.
Rather than panicking over your struggling investments, look at the market as an opportunity, and you'll find plenty of stocks that are likely to be multibaggers over the coming years.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Airbnb, Inc. and Roku. The Motley Fool has positions in and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), and Roku. The Motley Fool has a disclosure policy.
Previous
Next
Invest Smarter with The Motley Fool
Join Over Half a Million Premium Members Receiving…
- New Stock Picks Each Month
- Detailed Analysis of Companies
- Model Portfolios
- Live Streaming During Market Hours
- And Much More
READ MORE
HOW THE MOTLEY FOOL CAN HELP YOU
-
Premium Investing Guidance
Market beating stocks from our award-winning service
-
The Daily Upside Newsletter
Investment news and high-quality insights delivered straight to your inbox
-
Get Started Investing
You can do it. Successful investing in just a few steps
-
Win at Retirement
Secrets and strategies for the post-work life you want.
-
Find a Broker
Find the right brokerage account for you.
-
Listen to our Podcasts
Hear our experts take on stocks, the market, and how to invest.
Premium Investing Services
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.