Bull Market vs. Bear Market: Are we talking about the Stock Market or the Zoo

With all of the craziness around the Corona Virus, we’ve seen the stock market go up and down (unfortunately more down than up). We’ve heard people talk about Bull Markets, Bear Markets, and various other fancy terms regarding the stock market and finances. This article will help break down these fancy terms and help us make good decisions regarding our finances and investments.

A bull market is when the stocks are increasing at a strong rate for a decent amount of time. We can expect to see companies grow and boost profits, investors feel confident, and our retirement and investment accounts grow. The growth helps multiple households. Since the stock market is increasing, it becomes more expensive to purchase stocks in the market.

A bear market is when the stock market is decreasing. This can be a result of multiple companies losing money, a natural disaster, virus outbreak, or any other crisis. Unfortunately, this can lead to job loss, the value of our investments decrease, companies struggle to grow. Although there are a lot of negatives in a bear market, it becomes easier to purchase stocks because they are cheaper.

There are four common types of investments. There are Cash Assets, Bonds, Real Estate, and Stocks.

Cash assets are savings accounts, money market accounts, and Certificate of Deposits. These usually have a low interest rate, but they are more secure and it’s easier to get the money out when it’s needed.

Bonds are loan agreements that you can invest in. These are usually classified as a government bond (by the U.S. Treasury), municipal bonds (state and local governments), or corporate bonds (issued by companies). The borrower agrees to pay you a set interest rate over a fixed amount of time.

Real Estate is a growing area of investing. It could be as simple as buying a home. It could also be rental houses, apartment complexes, retail space, or commercial buildings. These investments normally take more money upfront and a lot of work long term. Since it requires more cash and more work, there is more risk, but the reward could be huge, too.

Stocks are small pieces or shares of a company. There are two primary ways to invest in stocks: single stocks and mutual funds. Single stocks are for a specific company. You can gain money by receiving dividends paid by the company or selling the stocks for a profit. Since the shares are only with one company, there is more risk for these shares because the company’s success could change at any time.

Mutual funds are funds where multiple people invest in multiple companies. When you invest in a mutual fund, you will get shares of stocks from multiple companies which will reduce your risk. If Company A has a rough year, but Company B has a great year, your losses in Company A will be offset by the gains in Company B.

There are four main types of mutual funds: Growth and Income, Growth, Aggressive Growth, and International. Growth and Income funds are more predictable and are more likely to have dividends. Growth Funds are fairly stable and are growing, but these are riskier than Growth and Income. Aggressive growth funds are risky and unpredictable. These could have a great year, followed up by a rough year. International funds invest in companies around the world. Some of these international companies also do business in the US like Nissan, Toyota, etc.

You’ve probably heard people add the word “cap” to investments. Small-cap are companies valued below $2 billion. Mid-cap are companies valued between $2-10 billion. Large-cap are companies valued greater than $10 billion.

If you spread your investments among the different types of funds and different sizes of companies, you will be able to diversify your risk and have a more balanced portfolio. The secret to success in investing is time and compound interest. The longer you keep your funds invested, the better chances that it will grow.