This week, I’m talking about how to keep calm in a bear market. A very important topic, especially considering that acting on our fearful and greedy human tendencies can result in a reduction of annual returns of 1.5% or more. That may seem small, but that’s the annual impact, so when you multiply that over a lifetime of investing, you could be reducing your total assets by 6 or even 7 figures. 

And that’s why it’s so important that you can keep a cool head in both good times and in bad, but especially in bad times when anxiety, stress, and uncertainty can all lead to panicky decisions. 

Today, I’m talking about the reality of the bear market. What a typical one looks like and what the really bad ones looks like - to help paint a picture of what you can expect from these down markets. 

First of all, let’s define a bear market and make sure we’re all on the same page. A strong, growing stock market is referred to as a bull market. Think of an aggressive, unstoppable, charging bull. A Bear market on the other hand, is defined as a drop of more than 20% from the highs. The stock market officially becomes a bear market once it hits this 20% threshold. Think of a bear as a sleepy, stumbling, bumbling, angry bear and you’ll remember what the terms mean. 

On average, bear markets have lasted 14 months in the period since World War II. The S&P 500 index has fallen an average of 33% during bear markets in that time. Interestingly enough, with this bear market, it’s been swift. As of March 12th, the Dow was already down 29% from its Feb. 12 record high, while the S&P 500 and Nasdaq are 27% from their Feb. 19 peaks.

This is the fastest entry into a bear market from the market peak since the Great Depression, which is astonishing. 

The worst bear market we had since the Great Depression was the last one from 2007-2009, when the stock market lost ½ of it’s value. It was both longer and deeper than usual, with the stock market taking about 18 months to bottom out. The drivers of that drop were fundamentally scarier than the coronavirus, and it’s hard to imagine that this bear market will be that bad. 

So hopefully that gives you a better understanding of bear markets, and if you’re like me, you take some comfort that we are already approaching the historical norms in terms of the depth of the drop. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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