In bear markets, prices are falling, investor confidence is low and the economy is declining. While, in bull markets, prices are rising, investor confidence is high and there is good economic growth.
You must have heard the terms ‘bullish market’ and ‘bearish market’ on the news. But, what do bear and bull market mean? Is there a difference between them? How to invest in bear market? And how to invest in bull market? We’ll discuss all these questions in this blog!
What is a Bear Market?
A Bear market is a period of the stock market where prices of securities are falling consistently. The common behaviour is that once the stock prices decline, investors become fearful of investing in the stock market and they sell their investments. However, it is important to remember that investing is for the long term and one shouldn’t panic with short-term volatility and stay invested.
Causes of a Bear Market:
- Investor Sentiment – Negative investor sentiment fuels a bear market, as more people keep selling their securities causing prices to fall even further.
- Economic Recession – An economic downturn may cause a bear market. An economic downturn is characterized by factors such as rising unemployment, declining GDP growth, less economic activity etc.
- Political Events – Factors such as war, trade wars and other political disturbances can cause prices to fall.
- Pandemic – in 2020, the COVID pandemic caused a bear market. Such events are capable of causing prices to decline.
What is a Bull Market?
A Bull market is a period of the stock market where prices of securities are rising consistently. Investors are very optimistic about the market and believe that prices will continue to rise in the future.
Causes of a Bull Market
- Investor Sentiment – Positive investor sentiment caused by stable economic conditions can boost the market and push prices upwards.
- Economic Growth – Good GDP growth and favorable economic conditions can cause a bull market.
- Good Corporate Performance – Desirable corporate performance can boost investor confidence and cause prices to rise.
- Global Stability – Positive regulation and a stable business environment globally can be the cause of a bull market.
Bear Market vs Bull Market
| Parameters | Bear Market | Bull Market |
| Meaning | Market where prices of securities are falling | Market where prices of securities are rising |
| Demand | Demand for securities is low | Demand for securities is high |
| Effect on stock prices | Low demand causes stock prices to fall | More demand causes stock prices to rise |
| Investor Sentiment | Negative sentiment, investors are not confident about the stock market and fearful of declining prices | Positive sentiment, investors are optimistic about the stock market and believe that prices will keep rising |
| Economy | Bear Market could be accompanied with economic recession | Bull Market could be accompanied with economic growth |
How to invest in a Bear and Bull Market?
Investment goals
A woman’s first step should be identifying her investment goals. Regardless of a bull or bear market, she should identify her goals first, make a plan to achieve them and consistently invest to make it into reality.
Think for the long-term
Invest for the long run and have patience. The longer your money is invested, the greater the potential for return and recovery from downturns.
Invest more
During a bear market, the prices of shares go down giving you an opportunity to buy more units. If you are investing in mutual funds through SIP, you can purchase more units of the funds when the markets are down with the same sum of money. Once the markets recover, you can gain from the rise in prices which will improve your returns.
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Examine your portfolio and diversify
Examine your portfolio and determine all the instruments your money is invested in. It’s important to spread your risk across different asset classes. This helps in managing your risk and giving you peace of mind.
Start Your Mutual Fund SIP Investment
Market volatility is a part of the stock market journey and bear and bull markets come and go, so do not fall into the trap of chasing hot stocks, instead invest in a disciplined manner. To do this, women can invest in mutual funds through SIPs. They don’t require you to time the market and this way, you can invest for the long term in a disciplined approach. SIPs also allow you to benefit from cost-averaging, where the average cost of purchasing each unit of a MF goes down.
In conclusion, as markets are unpredictable, investing regularly is the key to overcoming market volatility!
Avoid timing the market and begin investing through SIP with LXME’s expert curated mutual fund portfolios today!
FAQ’s
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