KEY POINTS:
Just as north Americans know not to run around like headless chooks when confronted by a bear, smart investors know to stay cool, calm and collected when in a bear market.
Their message: Ride it out, seek advice, diversify your investments... and whatever you do, don't panic.
A bear market is distinguished by falling prices. "It means that the market has had a very substantial fall from the previous high and that can be for a number of reasons," says Martin Allison of investment advisory firm ABN Amro Craigs.
This bear market was triggered by the global credit crunch and higher commodity prices, including oil.
As a result it is harder to find cash, household budgets are strained and oil prices are affecting almost all industries, he says.
But most investors have to go through these conditions at some time. The smart ones ride them through. "The investors who make money are the ones that are patient."
Concerned investors should seek advice from a qualified, experienced professional from a reputable organisation, he says.
Mike Stanton, director of Cranleigh merchant bankers, says that while mum and dad investors should be reviewing their assets, that does not necessarily mean they should be selling them. People who depend on investment income should ensure that they have their money with low-risk financial institutions and keep up to date with any developments related to their investments.
Those looking to grow their investments for the longer term may see opportunities to buy shares, businesses or property for low prices, but they need to ensure the assets' values will improve with time. Investors should not assume that by buying now they will automatically make substantial returns in the short-to-medium term - it can take years.
Average-cost investments, where a smaller amount of money is invested each month, tend to average out market swings and can be a safe option, Stanton says.
Alister Van de Maas of Russell Investments says his message to investors is to diversify. "By having an adequately diversified portfolio, what you are trying to do is protect against the rise and falls in some aspects of the market."
Compared with Australia and other countries he has worked in, Van de Maas says there are fewer measures to protect New Zealand investors. This is compounded by generally low financial literacy.
He warns mum and dad investors to read the fine print carefully. They should also check how their adviser is compensated and which products they are tied to.
"It is a very difficult thing to do, to manage your own financial affairs. Even a lot of financial professionals go to an adviser, to get to the bottom of what they are investing in. If you don't understand the risk of what you are investing in, then it's definitely not a good thing to be looking at."
There are several asset classes people can be looking at.
High interest rates prompt most investors to look to cash, but they should also look at minimising risk through equities and bonds, Van de Maas says. "When equities are rising, bonds don't tend to do so well and likewise when equities are falling bonds tend to do a bit better, so they act to protect you when the markets are moving against each other."
He suggests investors examine investment opportunities in international equities and also recommends government bonds, which are less risky than corporate bonds.
"There has been a lot of emphasis on corporate bonds over the past couple of years. They do offer higher returns, but actually their characteristics are less like conventional government bonds and more like equities. They're just more volatile."
Allison, however, recommends increasing holdings of quality bonds and corporate debt.
Van de Maas says it is important for investors to consider their investment time frame.
Young people can have more risky assets such as equities, he says.
"As you get older, your ability to recover from shocks to the market, or your ability to earn, is reduced so you should have less money in those riskier assets. "
But the strongest message is to not panic, says Allison "The market is probably best summarised by an overall lack of confidence and what it will require is a sign or indication that we are through the worst of it."