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Don’t Fear the Next Bear Market!

Stephanie Bedard-Chateauneuf, MBA
A brown bear sitting on a rock

The possibility of a recession coming in 2020 is quite high. If you’re worried about the next market crash, you can prepare yourself for it. It’s possible to avoid losing money in a bear market by choosing right stocks.

Stay focused on your long-term goals

First, don’t panic.

Unless you need to live off your investments, selling your stocks after their price has fallen will materialize what was previously virtual losses. To make money with stocks, you have to buy low and sell high, not the other way around.

Keep your long-term goals in mind. If your retirement is many years away, your long-term investment horizon allows you to take more risks. You have time to recover what you have lost.

Further, if you look at the market performance over several years, you’ll notice that they have always progressed in the long term, despite short-term declines. To limit your losses, make sure your portfolio is well diversified.

If you are retired or about to retire, you should secure a portion of your portfolio by investing in safer investments such as bonds.

An opportunity to buy quality stocks at low prices

Falling markets are actually an opportunity to profit from bargains in the market. Many overvalued stocks in a bull market start trading at more reasonable multiples in a bear market.

Warren Buffett famously said, “Be greedy when others are fearful.” Following this advice could be profitable. When the market is falling, prices of good companies are falling along with bad companies. Good companies are therefore trading at more attractive valuations.

Defend your portfolio with defensive stocks

As their name implies, defensive stocks are defensive; that is, they can defend your portfolio during a market downturn.

Defensive stocks generally perform better than the overall market during difficult times, as they’re less volatile. They usually have a low beta, which means that their price fluctuates less than the market. So, you have a lower risk of losing money during market downturns.

Owning a stock in the food sector is always a good idea when the market slows down. While it won’t be the fastest-growing stock in a bull market, it usually does pretty well in a bear market. People won’t stock buying food because the economy is slowing down.

Metro (TSX:MRU) is a solid, defensive business — ideal for those who care about markets and the economy. This stock has a very low beta of 0.04, so it’s much less volatile than the market and will fall less during a market downturn.

Metro has a history of earnings growth and regular dividends. This company shows stable returns over a long period.

Its $4.5 billion purchase of pharmacy giant Jean Coutu in 2018 is helping the grocer to boost its sales. In the last quarter, Metro’s sales grew by 12.8%.

Utilities are also defensive investments during a recession because they are safe, stable, and offer a constant cash flow via dividends.

So, Fortis (TSX:FTS)(NYSE:FTS) is a good buy when the market crashes, as people won’t stop consuming electricity. This stock has also a very low beta of 0.06, so it is much less volatile than the whole market.

Fortis is an electric and gas utility located in Canada, the United States, and the Caribbean. It operates solar, gas and hydropower generation facilities and is also a natural gas distributor.

The company pays a stable dividend of 3.5% and is considered to be a dividend aristocrat.

The company plans to invest about $17 billion over the next five years and to increase its dividend at an annual growth rate of 6% until 2023.

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Fool contributor Stephanie Bedard-Chateauneuf has no position in any of the stocks mentioned.

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