As the ongoing bull market is almost 8 years old and S&P (SPY) is hovering around its all-time highs, an increasing number of SA authors recommend various defensive strategies that can help investors mitigate their losses during a potential bear market. As losses during a bear market are particularly painful, these defensive strategies seem quite attractive, at least on the surface. However, investors should realize that these strategies come at a high cost, which should not be underestimated.
Cash
The first defensive action is to liquidate some positions and thus increase the cash portion of a portfolio. This helps mitigate the losses during a bear market. Even better, one can utilize the bargains that emerge during a bear market and purchase some stocks at opportune prices.
However, while all this seems great on the surface, it is actually much worse in the real investing world. To be sure, during the…