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What is a Bear Market and How Does It Impact Me?

David Little
April 3, 2020

by: David Little, Wealth Advisor at Keel Point in Huntsville, Alabama

Early in my career, the stock market had a few down days. Nothing like we have seen in recent weeks, but for a new Financial Advisor, it was still an unsettling time.

I visited with a colleague, who at the time was a 30-year veteran of the financial industry. I shared my feelings and asked how I should be communicating with my clients.

His words have stuck with me ever since.

“Son,” he said, “If IBM were off 50% no one would want it, but if the local department store has a 50% off sale, folks will be lined up at the door”.

In times like this, perspective is so important.

It is human nature to remove ourselves from the negative that surrounds us.  If we have a terrible experience with a business, we may never shop there again. The same often holds for investors- when they see their account values go down, they may want to distance themselves from that negative emotion.

The definition of a bear market is a 20% decline from the previous market high.  It also means that some folks believe now is different and are willing to sell their stock and mutual funds to others at a deep discount.

Since 1926, the average bull market lasted 6.6 years, with a cumulative return of 339%. On the other hand, the average bear market lasted 1.3 years, with an average drawdown of -36%. *

Our willingness to ride through moments of volatility, even severe fluctuations, can have a positive impact on our investments.

Now, depending on certain situations, adjustments may be needed. But missing as few as 10 of the best performing days in the stock market could have long-lasting implications on the performance of your portfolio.

The old cliché, “This too shall pass” has been worn out in recent days, but it’s true. This too shall pass.

Hang in there.  We will get through this together.

 

* Source: First Trust Advisors L.P., Bloomberg. Returns from 1926 – 3/31/2020.

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