How long will this bear market last? Here’s what history shows | personal financing
Officially, we’re in a bear market – that’s when stocks close 20% less than their most recent high. The question on every investor’s mind: How long will this bear market last?
Nobody really knows the answer. Sure, critics will try to predict (or guess), but these predictions will cover every possible outcome, from a quick, painless recovery to a prolonged downturn, the likes of which we’ve never seen before.
However, a look back tells us that this bear market is likely to fall between these two extremes.
What does history say about bear markets?
Since 1950, Standard & Poor’s 500 It has fallen by more than 20% on 11 occasions. Here are some interesting data points about those withdrawals, according to a new report from Yardini Research (PDF).
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- The bear market took place in the early 2000s 929 days to reach the lowest point. That’s about two and a half years. This bear market occurred after the spectacular rise of Internet stocks in the late 1990s.
- The second longest bear market started in 1973 and has continued 630 days to reach the bottom. Contributing factors to the deflation were inflation, slow economic growth, and the political turmoil surrounding US President Nixon.
- The bear market continued in the early 1980s 622 days Before stocks start rising again. Inflation has played a role here, too. The Fed took a tough stance against rate hikes by raising the fed funds rate to 20%. A recession and high unemployment rates ensued.
- The economic downturn in 2020 was the shortest bear market in history, driven by pandemic-related shutdowns and uncertainty. Only stock prices fell 33 days before returning to growth.
- On average, except for this current cycle, bear markets continue 388 days – Or just over a year old.
- Excluding the longest and shortest bear markets for 2000 and 2020, respectively, the average bear market duration is almost exactly One year.
- Since 2000, there have been only three bear markets that do not include this market. Two of the three lasted longer than the one-year average.
Investing in a bear market
Perhaps the most telling history of takeaways is that bear markets have always given way to bull markets. If you can avoid selling your property, or even better invest during an economic downturn, you will be well positioned to make solid gains on the other side.
Admittedly, continuing to invest in a bear market is emotionally challenging, but you can make small changes to your investing approach to make it easier. For example:
- If you are light on cash savings, you can temporarily increase your emergency fund deposit. An extra liquidity cushion can help you avoid hitting your portfolio when stock prices drop.
- You may be tempted to pay more dividends than you have in the past. Whether you reinvest your earnings or take them in cash, you will appreciate stability in the midst of a bear market.
- You can rethink your ability to take risks. Except for the traffic lights in 2018 and 2020, the market has been going strong for years. In bull markets, it’s hard to estimate how much risk you can take – now is the time to ask that question. If you invest more aggressively than you’d like, you can increasingly offset this risk by adding more conservative and fancy positions.
This bear market will also pass
Bear markets are always uncomfortable for investors. Fortunately, as history has proven, they are also temporary. You and your wealth can survive this cycle – often without changing your investment approach at all.
If you have to make changes, do so gradually. Avoid panic selling and major reallocations if you can. Patience will pay off, because there must be another bull market in our future – and you want to enjoy your share of those big recovery gains.
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