Bear Markets: It’s Good To Know Your History
It’s probably no surprise that markets are officially in bear market territory. What does that mean? Generally, when a market falls by at least 20% from its recent highs, that’s a bear. (When it rises 20% from its recent lows, it’s a bull.)
Granted, 20% is arbitrary. But the fear you may be feeling is understandably real. To minimize the pain, let’s focus on two historical truths:
- (1) Bear markets are inevitable, but they’ll also inevitably end.
- (2) Over time, the markets have delivered more positive than negative returns.
The Inevitable Bear
Based on a Vanguard analysis of MSCI data, we’d endured 8 global bear markets since 1980, or an average of two each decade.
According to Morningstar, our last bear market was in 2007–2009, when the S&P 500 fell nearly 51%. There have been some near misses since. For example, the market fell 19.2% in 2011 when a rating agency downgraded U.S. Government Debt for the first time ever. As recently as year-end 2018, the S&P 500 fell 19.8%.
The point is, bear markets happen. If we use the Dimensional Fund Advisors Global Equity Portfolio (DGEIX) as a proxy, we’ve seen a 33% global market decline between February 12 and March 17, when I wrote this. Hopefully, knowing market history, you now know an occasional 33% decline, or more, is simply part of the deal.
The Bigger, Bolder Bull
Why put up with it? History also tells us, those who can ride out the periodic declines get to enjoy more of the greater market growth. I’ve seen data suggesting we’ve seen a U.S. bear market on average every 3-4 years from 1926–2019. But according to Morningstar, U.S. large-company stocks have returned an average 10.2% annually during the same time. While the bears tend to loom larger than life in our mind’s eye, the bulls – or rising markets in general – prevail over time.
Bottom line, it’s scary right now, but this bear too shall pass.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.