Bear Markets: How to Weather a Down Time in the Economy and Protect Your Investments

A bear market is a downward trend in stock values, usually measured by the S&P 500. A market is generally considered a bear market if it loses 20% or more of its value, based on recent highs. (A bull market is the opposite, gaining 20% or more of its value based on recent lows.) A drop of 10% to less than 20% is considered a correction.

While a 20% drop may be the definition of a bear market, these downturns can be deeper. Declines average 34%, and in the 2007 to 2009 bear market, prices dropped by almost 52%.

During a bear market, you may see the economy slow down and unemployment numbers increase. Investors may become pessimistic and sell their stocks, which can send share prices even lower. 

Understanding Bear Markets 

In a bull market, it’s easy to think you have a high tolerance for risk. After all, when your investments are growing, a drop in their value can feel like a far-off, unlikely possibility. Watching the numbers increase in your portfolio makes you feel like you’re making the right decisions.

But when a bear market strikes, you may question your commitment to your financial plan. You might have a queasy feeling in your stomach or stay awake at night worried about your investments and the future of the economy.

Understanding bear markets and how they have played out over time may help you feel better about coping with them — and avoid making fear-based investment decisions.

Bear Market History

The stock market naturally runs in cycles. People don’t all measure market cycles exactly the same way, but since 1928, the S&P 500 has seen 27 bear markets. 

Bear markets tend to be short-lived. The length of the average bear market is about 14 months. While that may seem like a long time, bull markets last a lot longer — five years, on average. 

Bull market gains have been historically a lot higher than bear market declines. In the average bull market, stock prices grow 111%. In the average bear market, stock values decrease just 35%.

What Does A Bear Market Mean for Your Investments?

You’ve heard it said before: “Past performance does not guarantee future results.” History can inform your decisions about your financial plan, but when it comes to the stock market, no one knows exactly what will happen.

What we do know is that the market has its increases and decreases — that’s the nature of stocks. And there’s day-to-day and week-to-week market volatility even during longer upward and downward trends. 

If you’re considering changing your investment strategy during a bear market, it’s a good idea to get professional advice first. Price swings can mean a restructuring may have a significant impact on your portfolio. A professional can help you evaluate whether you have a well-thought-out investment strategy to withstand a bear market. If a bear market is truly too much for you to stand, they can help you reallocate your portfolio in a way that makes you more comfortable. 

Connect With a Farm Bureau Advisor

If a downturn in the stock market has you worried, talk to an advisor at Farm Bureau. Our advisors can help you understand your investments, weigh the pros and cons and decide if you want to make any adjustments. Don’t let fear guide your investment decisions — build confidence with professional advice.