Top 3 Best Fidelity Mutual Funds for Bear Market

The coronavirus pandemic hurt the world not only physically but also economically. During these times, investors may find investing too risky and scary. An answer to this apprehension is investments in mutual funds for bear markets.

There is a bear market when a market experiences prolonged price declines. It usually happens when securities prices fall 20% or more from recent highs or widespread pessimism and negative investor sentiment. 

While bear markets are typically identified with the decline in an overall market or index, a decline of 20% or more over a sustained period of time on the individual securities or commodities can also make the market in a bear market.

What Causes Bear Markets

Generally, hiring, wage growth, inflation, and interest rates are monitored as economic signals that may affect the economy’s slowing.  

In particular, low employment, low disposable income, weak productivity, and a drop in business profits manifest a weak or slowing economy. 

In the COVID-19 pandemic case, there are some different indicators like widespread closures, spikes in unemployment claims, and social distancing measures that caused the market’s slowing.

During this time, many investors fear losses of their investment. However, there are different ways where an investor may protect its investment. In this article, you will learn the best actions you may take to keep your funds intact.

3 Fidelity Mutual Funds for Bear Market

During a bear market, investing in mutual funds is advisable to help manage the risks. These bear market mutual funds are funds comprising an entire stock index. The advantage of mutual funds is that they have a diverse portfolio. While the market is in bear, not all stocks are affected the same way.

This article shares with you three best Fidelity Mutual Funds that you may want to consider. Investing in any of the three mutual funds during bear markets may help you reduce the risk of losses. The top three mutual funds of Fidelity Investments are Fidelity Balanced, Fidelity Contrafund, and Fidelity Focused Stock. Now more than ever, it is important to choose these Fidelity Mutual Funds.

1. Fidelity Balanced

  • Total Return During 2018 Downturn:
  • Expense Ratio: 0.52%
  • Assets Under Management: $41,202.55 ($M)
  • Benchmark Index: S&P 500
  • Inception Date:  November 6, 1986
  • Fund Adviser/Distributor: Fidelity Investments

The fund’s strategy is to invest approximately 60% of its assets in stocks and other equity securities and the remainder in bonds and other debt securities when its outlook is neutral. The fund likewise invests at least 25% of total assets in fixed-income senior securities. This includes debt securities and preferred stock. 

2. Fidelity Contrafund

  • Total Return During 2018 Downturn:
  • Expense Ratio: 0.77%
  • Assets Under Management:$136,386.45 ($M)
  • Benchmark Index: S&P 500
  • Inception Date: May 17, 1967
  • Fund Adviser/Distributor: Fidelity Investments

Fidelity Contrafund is to invest in companies whose value FMR believes is not fully recognized by the public. The fund is investing in either growth stocks or value stocks, or both. It primarily invests in common stocks.

3. Fidelity Focused Stock

  • Total Return During 2018 Downturn:
  • Expense Ratio:  0.88%
  • Assets Under Management: $3,573.44 ($M)
  • Benchmark Index: S&P 500
  • Inception Date: November 12, 1996
  • Fund Adviser/Distributor: Fidelity Investments

The fund normally invests at least 80% of its assets in stocks. Like Fidelity Contrafund, the fund invests in either “growth” stocks or “value” stocks or both and primarily in common stocks. If you seek the potential for long-term share-price appreciation, you can consider investing in this fund. However, you must be willing to accept the generally greater price volatility associated with growth-oriented stocks.

How to Invest During a Bear Market

Besides knowing the best Fidelity Mutual Funds, we also provide you with some practical tips in protecting your investments during bear markets. There are four other ways to help mitigate the impact of a bear market. These are dollar-cost averaging, diversity of your holdings, knowledge of stocks that perform well during the recession, and focus on the long term.

1. Do dollar-cost averaging

Dollar-cost averaging is a strategy in the stock market wherein you continuously invest money over time and in roughly equal amounts. This is a more prudent approach during a bear market. This strategy aims to ensure that you don’t pour all your money into the stock at its high.

For example, there’s a slump of 25% in the stock price. A usual $100 a share is now $75 a share. You may be tempted to buy more of this stock and take advantage of the lower price. However, given how volatile the market is, this value may not still be the bottom of the share, and it may tumble 50% or more from its high.

This shows how risky and scary a bear market can be. However, the stock market has shown that it will bounce back eventually. Our advice is to change your perspective that you should focus on the potential gains instead of looking at potential losses. In this way, a bear market may serve as a good opportunity to buy stocks at lower prices.

2. Diversify your holdings

Another strategy is to diversify your holdings. This is a valuable move, regardless of the existence of a bear market. To diversify your portfolio, you must invest in a mix of different assets.

All companies in a given stock index such as the S&P 500 generally fall when there is a bear market. However, all companies do not fall in similar amounts. If you have a diverse portfolio, then the fall of the market will have different effects. This helps you minimize the overall loss of your holdings.

Certainly, knowing in advance who the winners and losers during the bear market are not easy. When there is a bear market, chances are investors favor assets. Hence, another “defensive” strategy worth considering is to check if your portfolio contains assets such as dividend-paying stocks and bonds.

  • Dividend-paying stocks– even stocks the pricks do not go up, some investors still want to get paid in the form of dividends. Thus, it will help you if you have dividend-paying stocks.
  • Bonds prices of bonds move in the opposite direction of stock prices, making it an attractive investment during bear markets. In other words, when stock prices are low, prices of bonds are high.

Related: Top High-Yield Fidelity Funds for Dividend

3. Know and invest in the sectors that perform well in recessions

Another strategy in minimizing the impact of recessions is to observe the trend of different sectors’ performances during hard times.  Investing in sectors that perform well in recessions lessens the risk of losses. Hence, good observation of how different sectors behave during bear markets is key.

You have the option of investing in a specific sector through index funds or exchange-traded funds (ETF).  Index funds or ETFs are more diverse because each fund holds shares in many companies. This feature exposes you to companies in particular industries that may likely be more stable during recessions. 

4. Your focus must be on the long-term.

As mentioned earlier, history has proven that the stock market does bounce back. Thus, while the bear market may be burdensome, you may focus on long-term investments. 

Remember that what you endure during the bear market may be overshadowed by bull markets. Likewise, be mindful that money needed for short-term goals, such as those expected to be achieved in less than 5 years, should not be invested in the stock market.

Perhaps, one of the challenges when there is a bear market, is to resist the temptation of selling your investments. Thus, it is also wise and prudent to let fund managers handle your investments.  Financial managers act as vanguards of your investment. This is still true even if the market is in good condition.

How Can I Tell When a Bear Market Is Coming?

From the definition of a bear market, it is clear that it is not easy to determine whether you are entering a bear market. However, investors have some rules of thumb. 

One practical tip is to monitor interest rates. A good clue of an impending bear market is when the Federal Reserve lowers interest rates due to a slowing economy. 

It is important to note that warning indicators of the bear market should not affect your investment strategy. In the case of long-term investments, investors should not bother predicting the market. Rather, they should ensure that their portfolio is funded with money that they will not need for the next five years, and such funds must likewise be well-diversified and aligned with their risk tolerance. This will make them ride out the highs and lows of the market. 

What’s the Difference Between a Bear Market and a Market Correction?

Market corrections are brief and relatively short. The shallow drops in stock prices are between 10% to 20%. Case in point, during the bull market from 2009-2020, there were six market corrections in the S&P 500.

Moreover, market corrections may lead to bear markets, but more often, they do not. In the years 1974-2018, of the 22 market corrections, only 4 turned into bear markets. Those are essentially the differences between a bear market and a market correction.

What’s the Difference Between a Bear Market and a Bull Market?

A bull market is the opposite of a bear market. There is a bull market when prices in the financial market are rising or are expected to rise. The term is mostly used in the stock market, but it can also be applied to trade, such as bonds, real estate, currencies, and commodities. The term bull market only refers to extender periods in which a large portion of security prices are rising. This period may last for months or even years.

Bottom Line

Knowing where to invest helps you maximize your funds, whether during low or high of the market. Regardless of the market climate, you can still get a great investment provided that you invest in the right way and at the right time. 

As mentioned in this article, there are multiple ways that you can do with your funds, depending on the status of the market.

Apart from sharing where to invest, our advice is that that you consult any financial or fund managers to ensure that your fund or income will not be put to waste. 

The value of your financial assets may continue to improve even while the stock market is at its low. Knowing where to put them is always the key.To learn more about mutual funds and the investment world, subscribe to our newsletter.

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