How to Invest in a bear market

Don't hide in a cave when the market is down. Find stocks that will pay off when the bull makes its return.

You Will Need

* Stocks at limit price below market

* Small-cap stocks

* Bonds

* Dividend-paying stocks

* IPOs

* Currency of developed countries

Step 1

Sell your mutual funds, which tend to drop in a bear market because everyone is selling the same stocks.

Step 2

Buy stocks now at limit price below market, which means placing an order to buy stocks if and when they fall to a certain price. These orders come with a time limit.

Step 3

Buy small-cap stocks, also known as emerging-growth stocks, which tend to go up in a bear market because they are not owned by mutual funds.

Step 4

Sell any emerging-market stocks, which often do poorly when the world economy is suffering.

Step 5

Play it safe with bonds and dividend-paying stocks, which usually offer steady returns.

One rule of thumb is that the percent of your portfolio invested in bonds should match your age.

Step 6

Don't buy stocks on margin, which means buying them with borrowed money. This is always risky, but more so in a bear market, when stocks tend to decline due to a sluggish economy.

Step 7

Buy initial public offerings, known as IPOs. In a bear market, only the most financially sound companies have the luxury of going public.

Step 8

Buy currencies of mature economies, which may increase in value during a bear market because they often stay more stable during periods of decline.

Fact: After the 1929 stock market crash, stocks did not return to their pre-Depression levels until 1954.