In bear market situations different group of investors react differently. Some investors refuse to bring any change in their asset portfolio, while some try to convert all of their stocks in cash. But, experts suggest that at the time of bear market, investors should adjust their asset portfolio accordingly and should reinvest for a long term.
It has been observed over the years that, in a bear market, the investors step out of the stock market and try to invest in bonds or just hold cash. But, according to the experts, there is a better way to react in a bear market situation.
The investors can adopt a long-term asset allocation policy after considering all-important aspects. The asset allocation at the time of bear market require a mix of asset classes for long term. The investors should allocate their assets in different asset classes and subclasses like value stocks, growth stocks, bonds, real estate property, T-bills and cash.
Experts opine that market timing not help much in a bear market situation. The market timers try to speculate the times of market highs and market lows, which is an extremely difficult task.
At the time of bear market, many rational investors turn out to be market timers. They indulge themselves in analyzing their asset portfolios on the basis of weekly or monthly performance of the stock market. But actually the investment horizons set by these investors were of 10 years or even longer. So, they fail to get the real picture. In fact, in short term, performance of stock market tends to be seen in an exaggerated form. When investors involve in short term analysis of stock market, at the time of expansion, they expect too high return and at the time of recession, they expect a return, too little.
In the bear market situation, many investors refuse to change the structure of their portfolio. But, experts suggest that, at the time of bear market, investors should shed the risky stocks and should reinvest their asset for long term.
It has been also noticed that some investors convert their all stocks in to cash at the time of bear market. But, according to experts, this is also not right, as most of the times, the stock market recovers quickly.