If you invest long enough, you will experience multiple bear markets. How you respond to them determines much of your long-term investing outcome. Here’s what you need to know.
What a bear market is
A bear market is defined as a decline of 20% or more from a recent high in a broad market index, lasting at least two months. Bear markets are distinct from “corrections” (10–20% declines) in both magnitude and duration.
Bear markets have happened on average every 3–5 years throughout US market history. They last an average of about 9–14 months and result in average declines of 30–40%. They are normal, predictable, and temporary features of investing.
Historical bear markets in context
- 2008–2009 (Financial Crisis): S&P 500 dropped 57% — fully recovered in 4 years
- 2000–2002 (Dot-com bust): S&P 500 dropped 49% — fully recovered in 7 years
- 2020 (COVID crash): S&P 500 dropped 34% — fully recovered in 5 months
- 2022 (Rate hikes): S&P 500 dropped 25% — fully recovered in about 18 months
Every single one recovered and went on to new highs. Every one looked terrifying in the middle.
What most investors do wrong in a bear market
They sell. Watching your portfolio drop $50,000 or $100,000 triggers a biological fight-or-flight response — and selling feels like escaping danger. But selling during a bear market locks in the loss permanently and means you’ll miss the recovery. The investors who sell during downturns consistently underperform those who stay invested.
What you should actually do
- Do nothing. If you have a long time horizon (10+ years), a bear market is just paper losses on a journey that ends much higher.
- Keep contributing. Dollar-cost averaging means your regular contributions buy more shares at lower prices. Bear markets are sales on stocks — investors with regular contributions benefit from them.
- Rebalance. If your stock allocation has dropped significantly, a bear market may be a natural time to rebalance — which means buying more stocks at lower prices to restore your target allocation.
- Don’t check your portfolio constantly. Watching the number drop daily makes it nearly impossible to do nothing. Check monthly or quarterly instead.
The right mindset
Bear markets feel permanent when you’re in them. They never are. The question is never “will this recover?” (it always has). The question is whether you’ll still be invested when it does.