Stock market turbulence is a feature, not a bug. Bear markets are an inescapable part of investing. The good news is that bull markets are much more common and longer lasting.
Sound long-term investment decisions can sometimes look foolish during short-term bear markets. However, if you want to enjoy long-term returns from the market, you have to go through occasional down markets.
It’s important to remember that in our particular wealth management approach, you aren’t promised specific returns, you’re promised a set of time-tested processes. Ultimately, long-term returns come from these processes.
How Bear and Bull Markets Differ in History
One important point to remember is that there isn’t an exact definition of a bear market. Most observers use a 20% decline from a market peak as the measure, and by that definition, there have been a dozen bear markets since the end of WWII. The duration of these down markets ranges from less than a couple of months at the start of the pandemic in 2020 to 36 months after the end of WWII. The average length is about 12 months.
Bull markets occur more frequently and last longer. There have been 15 bull markets in the past 76 years with an average length of 55 months.
You should always remember that down markets are unpredictable. They happen sometimes without much warning, but they usually aren’t a total surprise. Perhaps the most important point to remember is that above inflation stock market returns wouldn’t exist without bear markets. No risk, no return.
Because emotions influence your investment decisions, living through down markets is challenging. You have to constantly fight off the urge to time the market. Market timing is impossible, however, except by chance. That fact applies to both bear and bull markets.
Bear markets can easily move you toward fatalism, believing (and acting) as if financial doom lurks around the corner. Pessimism can sometimes appear smarter and more rational than optimism, but a century of stock market history paints a very optimistic picture.
Why Bear Market Tension Can Be Positive
Short-term market declines present you with an opportunity to reaffirm and reexamine why you are investing in the first instance. Bear markets shouldn’t change your financial decision-making. The tension and stress bear markets bring can ultimately be positive if you take steps to fine-tune what matters most.
Your investments aren’t separate from your long-term aspirations, they are one of the drivers behind achieving these goals. Your specific financial planning goals should form the backbone of your investment portfolio.
It’s crucial to remember that poor choices you might be tempted to make during temporary bear markets can have damaging long-term effects. Start there. Ready for a real conversation?