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Bear markets are not interesting, but historically, they are excellent buying opportunities.
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To avoid missing out on fast rebounds that often follow bear markets, the best strategy is to keep investing.
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There may be no more terrible words in the title of financial news than "bear market".
A bear market is often defined as a 20% drop from a high above a broad market index, which can cause shock, especially when a sell-off occurs quickly. When President Donald Trump's global tariff announcement brings markets together to understand the fears that bear markets can bring, you just need to recall the news coverage.
However, they are also a healthy and necessary part of the market cycle, and understanding the bear market can help you navigate them wisely and even use them to your advantage. These are four truths about a bear market that every investor should know.
Imagine your car getting higher and higher. Then you cross the peak at a breathtaking speed and then descend. This is usually the feeling of stock market cycles alternating between bull and bear markets.
Like a steady uphill climb, the bull market can last for a while. Between 1949 and 2024, the average bull market S&P 500 (snpindex: ^gspc) It lasted for 67 months, or just over five and a half years. By comparison, the bear market lasted an average of 12 months and the shortest lasted 33 days. Bear markets may not be interesting, but luckily, they are usually relatively fast.
Since bulls are usually longer than bears, it is worth keeping investment. Yes, the decline you’ll see in the value of your portfolio during a downturn is frustrating. According to Charles Schwab, the S&P 500 bear market averaged 34%, with the 2008 financial crisis particularly severe, downturned.
But if you stay, take the stock to the stock and then eliminate it until the next bull market, you will get healthy gains. Since 1949, the average bull market has grown by 265%. Of course, there is no guarantee that future results will follow historical patterns, but investors can still learn from stock market behavior over the long term. Investors should remain optimistic.
One way investors usually shoot under their feet is to try to predict what the economy or stock market might do in the short term. Most people can’t grasp the pace of Wall Street’s change, and the market may spin until you realize what’s going on.
Historically, the U.S. stock market tends to follow the bear market roar. For example, after the S&P 500 hit its lowest point during the Covid-19 sell-off on March 23, 1920, the index soared 55% in just five months. In fact, in the five worst bear markets since 1929, the market returned an average of 70.9% in the first year after reaching the bottom.
The tricky part is that it is impossible to know when the bottom will arrive. Some of the most powerful market rallies occur during bear markets, but ultimately a false signal. That's why the best way to make sure you don't miss out on the next big rally in the stock market is to not move the money off the market first.
Buying dipping sauce has become a popular strategy – adding more money to the market after the decline. This often works. Of course, if you buy early in an expanded bear market, that will hurt. Fortunately, bear markets are not as common as you think: they happen about once every 3.5 years.
The market often fluctuates, but it also rebounds. A reduction of more than 10%, but less than 20%, is called correction. Since 1974, the S&P 500 has rebounded from an 80% correction before deepening bear territory. On average, the S&P 500 index was above 8% in the first month after correction and exceeded 24% a year later. So yes, long-term investors should take the market down, whether it is corrected or bear markets, as a buying opportunity. History is by your side.
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Justin Pope has no position in any of the stocks mentioned. Motley fool has no position in any stock mentioned. Motley Fool has a disclosure policy.
Bear Market Myth Debunked: Separating Facts from Novels Originally published by Motley Fool