By Key Points
Keeping your emotions in check can make all the difference between losing money and making money in a bear market.
The most successful investors prioritize long-term gains over short-term fluctuations.
You can navigate a bear market successfully by refusing to panic-sell and by buying high-quality assets at a bargain price.
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When stocks drop by 20%, it generally means a bear market has arrived. And as scary as that may seem, it’s a natural part of the economic cycle. In fact, over the past 150 years, U.S. stocks have dipped into bear-market territory about every three and a half years. Think of bear markets not as catastrophes, but as cooling-down periods.
The last bear market started in June 2022, so the U.S. has gone four years without one. The thing is, there’s no sure way to know when the next one may occur. However, when it does arrive, history shows that the single best thing investors can do is not to rush to the exits. Here’s why.
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Sidestepping the frenzy
The term “bear market” is sometimes intended to cause turmoil. After all, there’s no better way to draw more viewers to your news program or sell more internet ads than to scare investors half to death.
Rather than get caught up in the drama, experienced investors know to keep buying during bear markets, not sell. Buying when others are fleeing means you can purchase assets at a rock-bottom price.
Sticking with the market means continuing scheduled contributions to retirement or investment accounts, even as prices fall. By buying more shares at bargain prices, you’re practicing dollar-cost averaging, which lowers your average cost per share and amplifies gains when markets eventually recover. And markets will recover: On average, a bear market lasts 289 days, or about nine and a half months.
There’s no denying that bear markets aren’t anyone’s idea of a good time. But they tend to be relatively short-lived, and they provide an excellent opportunity to pick up high-quality assets at a low price.
The surprise at the other end of a bear market
If you continue to invest throughout a bear market, you may be in for a sweet surprise on the other side. Consider this: As the market pulls out of its slump and moves back toward bull territory, the shift may be barely noticeable. Over the past 20 years, more than one-third of the S&P 500‘s best days have occurred in the first two months of a new bull market, before it was clear that one had even begun.
Those who hung in there and kept investing throughout the rough patches were the investors who profited. And while past performance is not always indicative of future results, looking back at history can help you make an educated guess about what you should do when the next bear market arrives.
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