What defines the bear market?
A bear market is defined by a prolonged drop in investment prices — generally, a bear market happens when a broad market index falls by 20% or more from its most recent high. The reverse of a bear market is a bull market, characterized by gains of 20% or more.
A bear market is a fundamentally driven market decline of 20% or more. A bear market often coincides with a weakening economy, massive liquidation of securities, and widespread investor fear and pessimism.
Bear markets occur when prices in a market decline by more than 20%, often accompanied by negative investor sentiment and a weakening economy. Bear markets can be cyclical or longer-term.
One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy. Build positions over time: This goes hand in hand with the previous tip.
A bull market refers to major upswing in the markets, while a bear market is a pronounced market downturn. Bull markets often correspond to periods of economic and job growth; bear markets are often tied to periods of economic decline and a shrinking economy.
If you had invested in Netflix ten years ago, you're probably feeling pretty good about your investment today. According to our calculations, a $1000 investment made in February 2014 would be worth $9,138.15, or a gain of 813.81%, as of February 12, 2024, and this return excludes dividends but includes price increases.
Selling off all your stocks after seeing red in your portfolio during a bear market is the last thing you want to do. Volatility is scary, especially if you are risk averse, but running with the volatility wave is key and beneficial to the success of your long-term portfolio.
The duration of bear markets can vary, but on average, they last approximately 289 days, equivalent to around nine and a half months. It's important to note that there's no way to predict the timing of a bear market with complete certainty, and history shows that the average bear market length can vary significantly.
After a spectacular 2023, stocks are off to the races again in 2024. YTD, the Dow is up 2.72%, the S&P is up 7.28%, and the Nasdaq is up 6.41%. (And that's on top of last year's 13.7%, 24.2%, and 43.4% respectively.)
Market downturns can make you feel like you're even more behind in your savings goals. “We believe the key thing to do is to keep your 401(k) funds invested. If you take them out of the market, you may lock in losses and could miss out on opportunities for market rebounds.”
Where do you put money in a bear market?
Government bonds and defensive stocks historically perform better during a bear market. However, most people investing for the long term shouldn't be aggressively tweaking portfolios every time there is a sell-off. The best way to go is to build a well-diversified portfolio and stick by it.
Focus on the long-term
Money you need for short-term goals, generally those you hope to achieve in less than five years, should not be invested in the stock market. Still, resisting the temptation to sell investments when markets plummet is difficult, but it's one of the best things you can do for your portfolio.
How new investors can take advantage of a bear market. A bear market often offers an opportune time to buy stocks at a discount, making it a lower entry point for those who have generally held off from investing.
Bear Market Period | Duration | Total S&P 500 Decline |
---|---|---|
March 2000 to October 2002 | 31 months | -49% |
October 2007 to March 2009 | 17 months | -56% |
February 2020 to March 2020 | 1 month | -34% |
January 2022 to October 2022 | 10 months | -25% |
In general, bull markets are a better time to invest. Yes, stock prices are higher, but it's an overall less risky time to invest. You'll have a greater chance of selling assets for a higher value than when you bought them. "The markets can be very volatile in the short term," says Nwasike.
The historical average yearly return of the S&P 500 is 12.68% over the last 10 years, as of the end of February 2024. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 9.56%.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
Over many decades, the investment that has provided the highest average rate of return has been stocks. But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments.
The bottom line on Netflix stock? Which brings us to what you would have today if you had invested $1,000 in Netflix stock 20 years ago. First things first, however: if you purchased $1,000 worth of NFLX stock in early November 2003 and sold it at its November 2021 peak, you would have grossed nearly $158,000.
Spend Stable Assets, Protect Income-Generating Assets
During a bear market, these are the first assets you should draw down on. In particular, a market downturn that occurs during a recession can result in bonds maintaining their value as investors seek a safe place for their money.
What is the safest investment in the bear market?
What is the best strategy in a bear market? A potential strategy in a bear market (or any market) is to buy and hold stocks from major index funds like the S&P 500. Data from Crestmont Research shows that S&P 500 returns in any 20-year period from 1919 to 2022 were positive.
Another option is to reduce your spending as much as you can during a bear market. This will allow you to withdraw less money from your portfolio when prices are down. Cutting spending isn't easy, but it may help you sleep better and get you through a period of high volatility.
The bounce-back from the 2008 crash took five and a half years, but an additional half year to regain your purchasing power.
Few would dispute that the crash of 1929 was the worst in history. Not only did it produce the largest stock market decline; it also contributed to the Great Depression, an economic crisis that consumed virtually the entire decade of the 1930s.
In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.
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