5 Things You Should Know About A Bear Market

There is no denying that things are challenging at the moment. Inflation is on the rise, interest rates are increasing and the housing market has taken a turn. We are officially in a bear market which occurs when a market experiences prolonged price declines. Factors such as a weak or slowing economy or shocks like pandemics or war can all contribute to a bear market.

The reality is that bear markets are relatively common in the history of the stock markets all around the globe, often accompanied by economic recessions. Although bear markets can feel scary for investors who are watching their portfolios seemingly evaporate on a daily basis, there’s no reason for panic for long-term investors with diversified portfolios, who have the discipline to weather the storm.

You Have an Opportunity to Buy

When stock market prices decline and a bear market occurs, it provides investors with the ideal opportunity to buy. This is assuming that the market will recover which is highly possible but it does provide opportunities to purchase some of the best stocks in the market at a good price with the hope that they will deliver excellent returns in the long term.

People are encouraged to purchase individual stocks because it makes it possible to diversify and balance out risk. So, if you are thinking about how much you want to invest in stocks, think about how you would feel when markets turn downward and how you would feel should you miss out when markets improve.

You can take advantage of compounding when you think ahead in terms of decades as an investor. Over time, gains will soon mount up and that’s the reason why the general stock market return is around 10% each year. It’s not common for markets to return 10% in one year but in the long term investors are then rewarded with a higher longer-term average which is impressive. However, there is no denying that it is challenging to ride it out because you have to face the difficult times when you see the market continue to drop

Bear Markets Don’t Last too Long

If we look back, historically, bear markets have not lasted too long. Since 1950, the average bear market has lasted just 11 months and given that a bear market begins at the peak of the last bull market, it means that the current bear market has lasted for around five months. What this means is that the current bear market could be beyond the worst of it.

Average Decline In A Bear Market: 29.8%

When a bear market arrives, you can feel as though you are losing everything and that your portfolio will be worth nothing but that is not the case. In fact, since 1950, the average decline in a bear market is 29.8%. When we look at the current situation on the basis of historical averages, it could leave investors feeling reassured. As it currently looks, it could mean that the current bear market has declined by approximately 20% and so, this could mean that some buyers might consider it an opportunity to buy.

Bear Markets and Recessions

Bear markets are looked at in two different ways. There are those that are associated with economic recessions and those that are not. Since the 1950s, there have been eight bear markets that have not been associated with a recession and this saw a decline from peak to trough of around 23.8%. Of course, the past is not a reflection of the future, but even if a recession came our way, history has proved us time and time again that the market will always recover from it.

Do You Have A Plan?

There is no denying that these can be stressful times and it is now, more important than ever, to focus on your long-term goals instead of chasing short-term gains because they are hard to come by. If you have defined goals then a long-term plan is always going to give you a greater chance of meeting them.

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