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Just How Long Is This Bear Market Going to Affect Your Money?

·4 min read
SmartAsset: How Long Do Bear Markets Typically Last?
SmartAsset: How Long Do Bear Markets Typically Last?

A bear market marks a time of uncertainty for investors. It’s uncomfortable to watch your portfolio potentially free fall during a bear market. But knowing there is a light at the end of the tunnel can help. So, how long do bear markets last? Let’s explore. A financial advisor can guide you in making smart investments for your portfolio in a bear market.

What Is a Bear Market?

A bear market is when the price of securities in a key market index falls for a couple of months. The drop must be at least 20% to qualify as a bear market. It’s not a short-term correction but a long-term trend.

During a bear market, investors are pessimistic about the future of the financial markets. Generally, bear markets start rolling when there’s a recession or high unemployment stokes the fears of bad economic times on the horizon.

How Long Do Bear Markets Last?

A bear market is a rough patch for the economy. But even when things look bad, bear markets don’t last forever. So, how long do bear markets last?

Of course, no two bear markets are created equally. With that, the length of a bear market can vary dramatically. But according to LPL Financial, since 1950 bear markets have lasted an average of approximately 11 months. The 28 bear markets since 1928 have seen an average stock market decline of about 35%.

Bear Market Characteristics

SmartAsset: How Long Do Bear Markets Typically Last?
SmartAsset: How Long Do Bear Markets Typically Last?

So now you know how long a bear market lasts. But what do they look like in practice?

Before a bear market unfolds, the stock market is generally doing well. Investors are confident and that confidence is reflected in high stock prices. But as stock prices start to fall sharply due to other economic factors, some investors panic.

Eventually, better economic times entice investors to reenter the market. The reentry marks a turning point toward a bull market. A bull market is a term that indicates rising prices for a key market index and means that better times are ahead.

Bear Market Examples

The Great Depression is a notorious example of a string of bear markets. The stock market lost extensive value and unemployment soared across the country.

A more recent example of a bear market happened in 2020. The short bear market only lasted 33 days. But the market dropped by nearly 34%. This bear market marked the beginning of the tumultuous economic fallout of the global pandemic.

How to Invest in a Bear Market

When a bear market is on the horizon, you might not know what the best investment strategy is for your funds. A market downturn can be a challenging time to invest due to the emotional reactions that we all have to a falling market.

Here are three common investment strategies for a market downturn:

Think long-term. Bear markets don’t last forever. So instead of focusing on the falling market in front of you, think about the long term. The stock market has always rallied from a bear market. If you sell during a dip, you make those losses permanent. But if you stay the course, there could be big rewards.

Diversify your portfolio. A diverse portfolio can protect your market from the extremes of market volatility. A few assets to consider as part of a diverse portfolio include real estate, stocks, commodities and bonds.

Be consistent. Don’t stray from your investment strategy if it’s in alignment with your goals and risk tolerance. Sticking with the plan can help your portfolio come out of the bear market stronger than ever.

Bottom Line

SmartAsset: How Long Do Bear Markets Typically Last?
SmartAsset: How Long Do Bear Markets Typically Last?

Bear markets are an unavoidable part of the economic cycle. But the good news is that bear markets don’t last forever. Although your portfolio will likely see some losses during a downturn, staying the course is usually the right move. After all, the stock market has always rebounded from bear markets. Don’t let panic sway you from your future financial goals.

Investment Planning Tips

  • A financial advisor can help you make the right investment choices regardless of the market conditions. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • The appropriate asset allocation is critical during a bear market. Use SmartAsset’s free asset allocation calculator to make sure your portfolio aligns with your goals and risk tolerance.

Photo credit: ©iStock.com/monsitj, ©iStock.com/DNY59, ©iStock.com/Nuthawut Somsuk

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