How to Invest in a Bear Market in 2022

Watching the value of your investments fall can alarm even the most seasoned investor. However, these market downturns, known as bear markets, are part of the investing game. And while bear markets are a lot less fun than the good times of bull markets, there are tactics to overcome them. These tips will help you understand how to invest in a bear market.

What is a bear market?

First, it helps to understand what a bear market is. A bear market is a market decline, defined as a fall in price of 20% or more from recent highs. Bear markets can refer to stock indices, asset classes, or even individual stocks, although they usually refer to stock indices.

Prices don’t necessarily fall steadily during a bear market. There can be significant price spikes in asset prices, but even with these spikes there is a general downtrend.

Can you make money in a bear market?

Yes, you can make money investing in a bear market, especially if you are investing for the long term, as bear markets present an opportunity to scout for stocks.

During the short-lived bear market of March 2020, almost all stocks across all sectors were affected, including those that were fundamentally sound and not underperforming.

Ditto for the 2022 bear market. There are solid stocks trading at a low price, providing an opportunity to buy low and earn attractive returns once markets turn positive and prices start to rise.

However, there are some precautions to take in your investment strategy when investing in a bear market:

1. Make sure you have enough cash to cushion expenses for at least six months, especially when economic conditions are unfavorable.

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2. Be able and willing to take losses on your investments as prices can continue to fall, even from 52-week lows.

3. Research stocks you want to buy carefully to make sure they have positive indicators.

What investments do well in a bear market?

These investments can provide some relief during a bear market.

Certain Sectors

Some sectors are less affected by bear market conditions than others. For example, sectors that supply staples such as consumer staples, healthcare and utilities are generally doing relatively well as demand for their products persists despite adverse economic conditions.

Dividend Stocks

Other stocks to consider during a bear market are dividend stocks. Dividend stocks protect with their guaranteed returns. Regular dividend payments also help ease the pain of rising prices as a result of inflation. A good starting point for dividend stocks is Dividend Aristocrats, stocks that have been paying dividends for over 25 years and have consistently increased their dividend yields. Try TipRanks’ Dividend Center to discover dividend stocks and calculate your estimated returns.

Low P/E stocks

It’s important to pay attention to the price-to-earnings (P/E) ratio during a bear market. Value stocks with low P/E ratios are more likely to perform well than growth stocks with high P/E ratios.


Gold is also considered a safe haven during a bear market. The price of gold is not correlated with the stock market and often rises during volatile markets. Cash can be an option during a bear market, but with 8% inflation in the 2022 bear market, holding cash for an extended period will likely hurt.

short sale

There are ways to make money in falling stock markets, such as participating in short selling, options trading, and investing in index funds. However, make sure you are aware of the risks and understand your own risk tolerance.

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Tips for investing in a bear market

Warren Buffett’s famous advice is: “Fear when others are greedy, and greedy when others are fearful. If you are looking to invest in a bear market, there are some important tips that can help you protect your investments and make profits

1. Keep calm

Don’t engage in panic selling during a bear market. Selling at a loss when markets are historically recovering can lead to regret. To date, the 1989 Japanese stock market crash was the only bear market that never fully recovered.

2. Invest for the long term

Investing in the stock market for a long time is one of the best ways to protect your investments in a bear market, especially if you don’t have to liquidate your investments any time soon. A bear market is not a good time to invest in the short term.

3. Don’t try to time the market

It’s impossible to time a bear market, and you could miss an opportunity to buy hidden gems if you try.

4. Pay close attention to when prices start to turn

An uptrend can signal the end of a bear market’s volatility and an opportunity to jump in and buy lower-risk stocks.

5. Diversify your investments

Asset allocation is especially important during bear markets. Investing in bonds is one of the best ways to hedge your portfolio against a downtrend because bonds are inversely related to stocks. When stocks fall, bond yields rise and vice versa. In the US, the I Bond appears to be one of the best hedges in the current market downturn, generating very high returns.

6. Apply a dollar cost average strategy

Keep making small purchases of stocks. This averages the initial cost of your investment over time. In this way you also ensure that you benefit from the low prices and remain invested in the long term.

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7. Invest in dividend stocks

As mentioned earlier, dividend stocks can offer protection. Not only do the dividends serve as a buffer for your investments, but once the bear market turns bullish, those investments will pay off handsomely.

8. Conduct research

Steadily build your investment portfolio with a mix of all of the above through proper research. Don’t go all-in or all-out during a bear run. TipRanks can help you conduct data-driven stock research and make smart investment decisions.

How long will this bear market last?

It is impossible to know how long this bear market will last.

According to Hartford Funds, an average bear market period lasts 289 days (9.6 months). Compare this to the average bull market period, which lasts 991 days (2.7 years), and you have all the confidence you need to weather the current market downturn.

Notably, Hartford also revealed that half of the S&P 500’s best gain days over the past 20 years have occurred during a bear run. This puts the strategy of investing for the long term during a bear market into perspective.

Some of the notable bear market runs in history are the great depression of the 1930s, the dot-com bubble of the late 1990s, the housing bubble of 2008-2009, and the shortest bear market ever recorded during the COVID-19 pandemic of 2020 (33 days).

During a bear market, investor sentiment is low and bearish. As a result, investors sell holdings, leading to further falling market prices. Ultimately, investors view the low prices as a buying opportunity that can signal the end of a bear market.

Bear markets should not be confused with market corrections. During corrections, indices or stocks fall 10% or more from their recent highs. A stock market correction may or may not result in a bear market.

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