Should We Fear Bear Markets?
A bear market occurs when a market drops by 20% or more and is perhaps an investor’s worst nightmare. A 20% drop in assets is enough to worry even the most experienced of investors, but is this fear justified?
Bear markets are a part of investing. While it is has been quite easy to lose sight of this due to the rise and rise of share markets over the last decade, the past month has been a wakeup call to some that market downturns and corrections are part of the cycle.
The below chart shows bull and bear markets throughout history.
As the chart makes clear, investors who have stuck out bear markets have been rewarded for their persistence with returns during bull markets that can more than make up for the losses.
Seeing your assets drop in such a considerable way in such a short space of time can be troubling for anyone. We spend years building up our assets and it can be taken away in a matter of weeks. Being scared is a very natural response to this.
Investing can bring up some strong emotions. In the face of a market fall, investors may find themselves making impulsive decisions which they otherwise would not have made. Often, these decisions are made without logic and considered thinking.
Remaining disciplined and maintaining perspective can help us ensure we remain committed to our investment goals and long term strategy.
No one knows what the market is going to do in the future, but having a good understanding of how the market has behaved during and after past bear markets can help us avoid making brash, impulsive decisions that may cause far more harm than good to your portfolio’s long-term value.
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