During Bear Markets, Keep an Eye on the Long-Term Picture

June 22, 2022


As some of you may know, we're officially in a bear market, which happens when stocks close down 20% or more from their most recent high. While this can be worrisome for some of you and also cause a large range of emotions (mainly fear), there is some information that I want to share with you.

First let’s talk about how long do bear markets typically last.  Although every market decline is unique, we can learn from the past.  Market downturns are common, but also have been temporary.  Since 1949, market declines of at least 5% have happened about three times a year, while steep declines of 20% or more (known as bear markets) happen about once every 6 years.   Large declines have been less frequent, but typically takes longer to recover, with an average recovery being 401 days or just over 1 year.  We have now had 2 “bear markets” over the past 2 years, with the last one coming from the Covid shut down.  After a decline of 20% from December 2019 to March 2020, the U.S. equity market fully recovered in just four months and was back to its pre-crash level by July 2020. This market recovery is evidence that one can never predict how fast a recovery will be. 

I can tell you that recoveries can be worth the wait.   Patient investors have been rewarded after downturns.  While we can’t know exactly if or when the market will recover, stocks historically have recovered — often sharply — following a downturn.

Since the Great Depression began in 1929, every decade has had major declines in the S&P 500. And, in every case, the five years following those declines have delivered, on average, positive returns.   On average, returns in the first year after the five biggest market declines equaled 70.95%. A hypothetical $10,000 investment would have more than doubled over the five years after each market downturn.


Over time, markets have proven to be resilient.  This is not the first market decline – nor will it be the last.  I know that there is a lot of negativity in the news these days, between Ukraine, inflation, and now the stock market.  Please remember that there have been dark periods before.  Even world-changing events — wars, political upheaval, economic collapse — any they have only temporarily derailed stock markets.

Over the long-term, investors have not only recovered their losses, but have seen the value of their investments grow. Indeed, the periods following recessions have often been rewarding ones for investors.

A $10,000 investment in the S&P 500 right before Pearl Harbor would have grown to over $44,000 10 years later. A $10,000 investment in the S&P 500 on Sept. 11, 2001, would have grown to roughly $26,000 over the next 15 years — a period that included the economic downturn of 2008-2009.

Sometimes we get calls from clients that ask if they should get more conservative now and then make a change when “things get clearer”.  This typically does now work as missing even a small part of a recovery can hurt your long-term results.  As seen in this graph, you can see the importance of missing just several of the best market days of the year can make a drastic impact on your portfolio.  It is not about timing, it is about time in the market.


In addition to that, being too cautious (and conservative) can make it harder to reach your goals.  Whether you are saving for retirement or IN retirement, you are still a long-term investor.  Moving toward conservative investments like bonds can be appealing during times of market volatility. But a more conservative investment mix might result in less growth than you need.  Your investing plan was created based on your unique goals.

We are here for you in these volatile and sometimes scary times.  As always please feel free to contact our office to review your long-term goals or if you just want some reassurances.  If we don’t hear from you, please turn off this short term financial noise, focus on the long term and enjoy your much deserved summer!