How to Invest for the Coming Bear Market

As the correction intensifies, it’s time to start planning ways to cash in on the growing abundance of bargains.

We may not be in an official bear market yet—but it sure feels like one. The Dow Jones industrial average plunged by nearly 540 points during the day on January 20, before finishing the trading session off by 249 points, or 1.6%. Standard & Poor’s 500-stock index logged a decline of 1.2%. Nearly 1,300 stocks that trade on the New York Stock Exchange hit new 52-week lows.

The S&P 500, down 13% from its May high, is deep in correction territory—defined as a decline of at least 10%. To be considered a bear market, share prices need to fall at least 20% from a previous high. The typical S&P stock is already there; on average, stocks in the index have sunk more than 25% from their respective 12-month highs. The Russell 2000, a barometer of small-company-stock performance, crossed into bear market territory earlier in January, and is now 23% below its June peak.

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.