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Funds 407: Bear-Proofing Your Portfolio

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1.
During a bear market, _______.
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A particular type of investment performs poorly. Investments lose money during a bear market. Not all bear markets are marked by rising inflation or recession.
2.
The investments that perform poorly during bear markets tend to be the same ones every time.
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False. Each bear market attacks in different ways. Certain sectors tend to be hit harder in different ones.
3.
What's perhaps the best way to bear-proof a portfolio?
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Build a diversified portfolio that owns a little bit of everything. Timing the market by moving to cash rarely succeeds, while bear-market funds will lose money during a bull market.
4.
How do bear-market funds aim to make money during bear markets?
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By shorting assets. By shorting assets in certain classes, bear-market funds aim to do well when the market heads south.
5.
During a period of deflation, what usually holds up well?
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Intermediate- and long-term bonds. Bonds tend to hold up relatively well in deflationary environments. Because their dividend income payouts are effectively worth more in this type of economy as the prices of goods decline, their purchasing power actually grows in deflationary environments.