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The U.S. stock market officially touched bear market territory this week. I know we’ve all seen those “bull and bear” bookends, but exactly what is a bear market?
According to Investopedia, “It’s a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.”
The opposite of a bear market is a bull market. As you might imagine, during a bull market, stock prices are rising and there is a lot of optimism. Having said that, the old saying is that the market climbs a wall of worry, and I have found this to be true even in bull markets.
The good thing about bear markets is that they eventually end, and when they do, stocks are available at lower prices. Oddly enough, the financial markets seem to be the only place where buyers are reluctant to purchase at lower prices. Oh, I know…been there, done that, until I learned better!
Why is this so important? One of the major principles of growing your money is to avoid buying high and selling low. This is one of the biggest problems individual investors make.
A basic awareness of the major cycles in any type of market, whether it’s real estate, stocks or gold, helps you do just this. It’s another one of those simple, but not always easy principles, especially when everyone is touting a particular type of investment.
While the exact tops and bottoms are impossible to know, an awareness of the “neighborhood” isn’t. Just like you wouldn’t wait for the price of a suit to go higher before buying it, you wouldn’t want to purchase a particular investment after the prices have run up for several years. This is where some basic knowledge and simply paying attention become so important.
As a smart shopper, you’d be delighted to buy a $250 suit on the sale rack for $100. Develop a value based mindset regarding all of your purchases, whether they relate to your home, your investments, your car or your clothes. Financial women are savvy smart shoppers across the board, because they know that this is what leads to living a rich life.