Bear market: How to invest in a crisis

Wars, global crises such as the coronavirus pandemic or recurring geopolitical conflicts–. the effects of a crisis are usually felt in the economy and on the financial markets. For investors, the question is: What is the best way to invest money in a bear market, i. e. when prices are set to fall over a longer period?  

Lessons from the past show us that since their beginnings, stock markets have set new records time and again despite all the slumps. So when it comes to investing, the investment horizon is one of several factors that play a major role.

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Avoid impulse reactions

Experiences from previous years show clearly: Stock exchanges have always recovered from crises, so it helps to hold your nerve when the financial markets come under pressure. Ill-considered panic selling, by contrast, can lead to real losses. The difficulty for investors, according to research findings, is that they tend to place greater weight on losses than on gains. This tendency toward subjective evaluation is something to be aware of, and the important thing is to have solid investment strategies and, frequently, patience. Even in uncertain times, it can be worthwhile investing regularly and looking for the overriding price trend amid fluctuating prices.

Stock up with the right strategy

You will never be 100-percent protected from losses when investing, but you can take precautionary measures. Those who diversify and look beyond equities can gear their portfolio toward greater stability. A long-term investment horizon can also be helpful here, as can an investment strategy aligned with your personal goals and risk tolerance. Even if it feels counterintuitive at first, adding to your portfolio during difficult times in particular is an established strategy among experienced investors. But what role does increased inflation play here?

Include protection against inflation

Inflation has risen rapidly of late: In November 2021, Germany’s inflation rate was 5.2 percent, while Switzerland’s was 1.5 percent. So when it comes to choosing the right equities for a portfolio, it can make sense to aim for protection against inflation. One crucial factor in selecting equities intended to offer protection against inflation is the pricing power of the corresponding companies: Some companies are better able to pass on rising costs and thus maintain their profit margins, so equities from these kinds of companies can generally offer greater protection in times of rising inflation.

A good example are some Swiss companies, which generate the majority of their sales abroad. That means that, with respect to inflation, they are more dependent on the international situation than that of Switzerland. Meanwhile, structural factors in Switzerland as a place of business also mean that companies based there have to convince customers more through innovation and their market position than with low prices—and these are good prerequisites for determining prices and holding one’s own in the face of high inflation. The composition of a portfolio likewise plays an important role.
 

Diversification and active investment management

Whether in Swiss stocks or international markets: Active investment management can pay off in uncertain times particularly. Experienced portfolio managers can react to fast-moving developments in the market, and an also compile a portfolio diversified across different sectors and markets with an eye on current developments.

Investing money with a strategy more important than ever

During a crisis in particular, it is important not to allow the fear of losses to gain the upper hand, but rather to keep your nerve and act with careful thought. A look back at the history of stock markets may give investors the peace of mind they need to choose a solid investment strategy and to invest optimally: After previous crisis periods, the markets have recovered reliably and achieved new record levels time and again. That means a market slump doesn’t necessarily result in a loss. Indeed, every minus and every plus on the market will only take effect when you sell your investment.