Are you feeling flighty about where to invest your money in today’s ever-fluctuating markets? It can seem like a dizzying back and forth between the Bears and Bulls that leave investors uncertain. While there’s never any sure way to guarantee success in this venture, understanding the basics of what it means when the market moves from a bear to a bull market and vice versa can help stabilize those investor woes.
A bear market refers to a period of declining stock prices, typically defined as a decline of 20% or more from recent highs. In a bear market, investors tend to sell off their shares (hoping to time the market), leading to further downward pressure on prices. Historically, bear markets in the US stock market have been caused by a variety of factors, including economic recessions, financial crises, and geopolitical events. For example, the bear market of 2008-2009 was caused by the global financial crisis, while the bear market of 2000-2002 was the result of the dot-com bubble burst. Something to remember in a bear market is to not act irrationally when it happens – easier said than done. However, just like if you encountered a bear in the forest, the same steps of “getting out alive” apply.
- Don’t Run or flee – STAY INVESTED
- Don’t Make any Sudden movements – block out the outside noise and try to not make any emotional decisions
- Lie on the ground and play dead – sometimes all you can do is just lay down and ride it out. Know that this too shall pass.
We talked about this in more detail last year, see our posts “3 Things You Can Do When Your Portfolio Is Down” and “3 Things to Remember During a Stock Market Correction.”
On the other hand, a bull market refers to a period of rising stock prices, typically defined as a sustained increase of 20% or more from recent lows. During a bull market, investors tend to be optimistic and buy shares, which drives prices up. One of the longest bull markets in US history occurred from 1991 to 2000, during which the S&P 500 index rose more than 250%. In contrast, the bull market from March 2009 to February 2020, also saw the S&P 500 index increase by more than 250%. That period is the current “record” for the longest bull run in US history.
Although the old adage in investing is to ‘buy low and sell high’, many investors get caught up in the trap of doing just the opposite. This can happen when trying to second-guess market movements or as a result of making emotional decisions without any planned strategy. To ensure your investment goals are met, it’s always recommended you consult your financial professional before committing key portfolio moves!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.