The year is 2022. What started out as a year following the record breaking gains of 2021 in the stock market has slowed and reversed course by the end of the year. The stocks of many companies as well as indexes are down, and you may be wondering what are some of the ways you can grow your wealth when the stock prices are down. The stock market is generally recognized as being cyclical in nature, so understanding where you are at in the cycle can potentially help preserve as well as grow wealth better than just standing on the sidelines.
The following are specific strategies that could help you grow your wealth during a bear market. Go long and invest in US Treasury bills due to their rising yields. The US government is generally acknowledged to be one of the highest if not the highest credit worthy institutions in the world. Therefore whatever yield you can get on Treasuries can be looked at as risk free money. Short Speculative “growth” stocks, in recent times some companies have sprung up whose main attraction to invest is not underlying business profits, but potential for growth. When in a bull market with frothy valuations these companies can seem like they are doing well, but in a bear they are the ones most likely to fall the hardest. Another way to potentially grow your wealth during a bear market would be going long on the US dollar. A higher valuation in the Dollar could be caused by slowing economic growth in other countries, causing their central banks needing to do quantitative easing. This could potentially push the dollar to a higher valuation relative to their currencies.
In addition to specific market tactics, it is helpful to keep the broader picture in mind. This requires a back to the basics approach, and always keeping in mind important principles. For example, Warren Buffet warns against buying stocks on margin as well as obsessing about the newest doom and gloom headlines. Another basic principle is to be too concentrated in one area of the market, and not diversify. Overall though it is up to the reader to take into consideration their situation and goals and come up with a strategy that they thing will do the best for them. We wish you the best of luck in your wealth creation journey.