Australia’s share market is showing clear signs of entering a bear phase, with the ASX 200 down more than 15% from its peak. A bear market is defined as a prolonged decline of 20% or more. The causes are familiar: rising interest rates, stubborn inflation, and slowing growth in China, Australia’s largest trading partner. For everyday investors, this can feel unsettling, but history shows that staying calm and following a few basic principles can limit losses.
The first step is to review your portfolio's diversification. Overweight positions in cyclical sectors such as banks and miners are especially vulnerable. Spreading investments across defensive sectors—healthcare, utilities, and consumer staples—can cushion the fall. Holding a higher cash allocation also provides flexibility to buy quality stocks at cheaper prices later.
Second, avoid panic selling. Research by the Australian Securities Exchange shows that investors who sell during downturns often miss the recovery. Instead, consider dollar-cost averaging into broad-market exchange-traded funds. This approach smooths out purchase prices over time.
Third, focus on companies with strong balance sheets, consistent dividends, and pricing power—firms that can survive a recession. The Reserve Bank of Australia has signalled further rate hikes, so debt-heavy stocks may face additional pressure.
What to watch next: the RBA’s November meeting, corporate earnings reports, and global commodity prices. A soft landing is still possible, but preparation is key. The best time to prepare for a bear market is before it arrives.