Bear Mutual Fund

Bear Mutual Funds - Time to Take a Bite?

You may not have heard about bear market funds, but the fact is that they exist, and are quite popular among investors. Although they are risky, bear market mutual funds are used as a leverage for broadening portfolios, specially in times when things aren't going well. But what exactly is a bear fund, and how do they work? Let's find more about this curious financial tool.


What Are Bear Funds?
In the stock market, people believe that there are market trends. These trends are divided into primary market trends, and secondary market trends. In the case of primary market trends, there are two types. The bull market and the bear market.

A bull market is the classical stock exchange market, in which people buy stock expecting that it's price will rise and that they will receive dividends for it. The most famous period of history for bull markets were the 1990's, when the economy of the US and many countries in the world grew at incredible rates.

The bear market is all the contrary. It is a market where pessimism rules. Desperate investors are looking for people who are willing to buy their plunging stock. The perfect example for this kind of scenario is the Great Depression of 1930s. Although there isn't an official definition for determining a bear market, investors consider that a 20% decline in a key stock market index is a telltale of this phenomena.

So, a bear is an investor that thinks the other way around. Instead of expecting the share to rise, he is expecting that the share will go down. This may sound as an strategy that should belong to a reality more attuned with "Alice in Wonderland", but it is real, and it works.


Why Aren't They Good For Long Term Investments?

The problem with bear funds is that they go against an historical fact. In the last hundred years, the stock market in the US has grown at an average of 11%. It makes sense, since the economy in the last ten decades has been growing. Sometimes slow, sometimes fast, but it hasn't stopped to grow.

So, if an individual wants to put money in bear mutual funds as a long term investment, then he won't earn money. Actually, he will lose it. It is impossible to go against the tide of the national economy. For that reason, bear market funds are considered short term mutual funds or short term bond funds; the only way to make money with them is during determined periods of time, but no more.