- What is it?- What to do?
- It is an investment strategy, generally for the long-term, where the aim is to obtain the same historical average return of the main financial market indices, such as the S&P 500 or the ASX 200.
- It is implemented using index funds (also called ETFs) as they present a broader diversification (and consequently lower risks) than isolated assets, such as a stock of a specific company.
- This strategy requires less effort (and knowledge), as it avoids unnecessary purchases and sales and tends to present returns similar to active investing strategy in the long term, but with less risk and lower costs.
- The main advantage for investors is: it allows you to spend less time tracking investments, so you can focus on your current source of income, whether passive or not.
How to invest during bear markets:
- Don't do anything different than you do in bull markets.
- You don't need to despair. History shows that markets tend to recover, even if it takes time.
- Remember: you do not have investments in specific companies, more likely of falling to zero.
- Preferably do not sell any positions. On the contrary, keep your contributions in line with your investment plan.
- You can rebalance your portfolio just by using new contributions. Buy the assets that have the largest negative deviation from the original desired allocation.
- Don't try to time the market as this is extremely difficult and you will only get frustrated.
- If you can, increase the amount (and/or frequency) of contributions. This way, you will buy assets at lower prices, increasing return expectations.