Putting Bear Markets And Bull Markets Into Perspective

2018 was anything but calm for world markets. Volatility, which has not been seen in close to nine years is back with a vengeance. The Dow Jones has had many days where the change in value within one day, has fluctuated by 300 points or more. There is fear out there as interest rates start to climb, trade wars are threatening, and profits are slowing down. As of mid-November, many stocks are in “bear territory”, which is defined as a 20% drop from a stock’s recent high, or very close to it. However, if you ask 50 different economists for their opinion, you will get 50 different answers.

Let’s face it, markets are impossible to predict because there are just too many variables that can affect them one way or another. So, whether the markets will continue falling is anyone’s guess. But we can get an idea of how long the pain will last, if indeed, we are heading into a bear market.

Over the past 100 years, there have been eight bear markets. The longest one lasted for 2.8 years and the markets went down by a total amount of 83%. This happened in the great depression in the 1930s. The shortest bear market lasted for three months and that was in 1987, when the markets crashed by close to 20% in one day. The drop for the three-month period was close to 30%. On average, a bear market lasts for about 1.5 years and markets lose about 40% in value.

On the other hand, over the same hundred-year period, there have been nine bull markets. The longest one lasted 14 years and the markets gained 815%. This occurred, not surprisingly, after the great depression. The shortest bull market lasted for 2 1/2 years and earned 75%. The current bull market has lasted about ten years and has earned close to 400%. The average bull market last about nine years with an average total return of 480%.

The best way to approach a bear market is to be prepared for it. Psychologically prepared. If you can stomach or afford a 30% or 40% drop in the value of your assets over one to three years, you can ride it out. On the other hand, if you’re getting close to retirement and have accumulated a significant amount of wealth, being fully invested in the stock market is a huge risk. If you were retiring in 2008 or 2009 you would have lost half the value of your savings, while withdrawing money to support your retirement. I don’t know anyone who can stomach that.

You need to figure out if you can tolerate the ups and downs. If you cannot figure this out for yourself, a seasoned financial planner, who has been through a few bear markets will be able to help you out.

It’s really anyone’s guess as to where the markets go from here. I’ve given up the prediction game—a few bears ago.

John Kalos, CFP,Fin.Pl. is an independent Certified Financial Planner with Ironshield Financial Planning. He is also the founder of “Confessions of an Ex-Banker” Podcast.