4 Things You Need to Know About Bear Markets
The S&P 500 is now in bear market territory. Before you make any moves, tune in to learn four things you need to know about bear markets.
What is a Bear Market?
Generally speaking, the term bear market is used to describe a sustained period of market price decline. More specifically, bear markets exist when the stock market drops by 20% from a recent high, just like what we’re seeing today. This has many worried, but long-term investors understand this is part of a normal course. After all, there have been 26 bear markets since the year 1900, and on average, occurring every 3.6 years and lasting 289 days.
What Follows a Bear Market?
The average bear market is historically followed by a bull market. In a bull market, stocks do great, and on average, last 991 days. It may be tempting to exit the market because of its current state, but making a decision like this could mean having to buy-in at higher stock prices after a recovery.
Have a Diversified Portfolio
It’s important to invest your money in as many different sectors of the economy as possible. You put yourself at more risk of seeing a drop in your investments if you choose to not diversify your portfolio. The goal of diversification is to reduce risk so that the performance of one investment doesn’t correlate to your portfolio’s performance. In other words, you’ll help maintain a steady balance in your portfolio and not have to worry as much about your investments plummeting if the market isn’t performing well.
Dollar-Cost Average Method
Dollar-cost averaging is a commonly used investment strategy. As an investor, you’ll divide up the total amount of your investments and invest small chunks across a given period. Doing so helps reduce the impact of volatility in the stock market, which in turn, affects your portfolio.
Remember, bear markets are part of a normal cycle, so don’t give up your investments because of market downturns. The market has historically proven to always come back up! Of course, everyone’s financial situation is different. As always, if you have specific financial goals you’d like to achieve, consider gaining expert coaching from a CFP® professional.
In this episode, Luis talks about the following and more:
- Definition of bear market
- Average occurrence and length of bear markets
- The one thing you should not do during a bear market
- The importance of a diversified portfolio