Staying calm during a bear market
One of the risks you face as an investor is that financial markets lose value suddenly and significantly.
Sometimes they bounce right back. Other times the downturn is lengthy.
If history is any guide, prolonged downturns of 20% or more can be expected twice a decade. Known as “bear markets,” these episodes can test any investor’s staying power.
What is a bear market?
While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period. By this measure, there have been ten previous bear markets in stocks during the last half-century.
The last ten bear markets
Source: Standard & Poor’s Corporation.
Bear markets can hurt
Bear markets get the best of investors everywhere. It’s extremely difficult to see one coming—or to get out of the way.
Your account can lose significant value. Downbeat news coverage can add to the uncertainty. Friends, family, or coworkers may urge you to make changes in your holdings.
It may feel as though the market has singled you out for punishment. But that’s not the case. You may be better-served by adhering to your long-term investment plan.
Stay the course
Although there are no certainties, the market’s ups and downs tend to even out over the long run into a steady upward trend. That’s why Vanguard advises investors to “stay the course” by remaining true to their long-term plans.
The foundation of a sound investment plan is to own a mix of investments that reflects your goal, time horizon, and risk tolerance.
Having the right mix
Here are three questions to consider as you evaluate your investment mix:
Complete the Investor Questionnaire to find which investment mix might be appropriate for you. Here’s how some suggested investment mixes have fared over time, including how often they’ve recorded down years before:
Model portfolios: 1926-2007*
*The performance data shown represents past performance, which is not a guarantee of future results. Stocks: Standard & Poor’s 500 Index from 1926 to 1970, Dow Jones Wilshire 5000 Index from 1971 through April 22, 2005, MSCI US Broad Market Index thereafter. Bonds: Standard & Poor’s High Grade Corporate Index from 1926 to 1968, Citigroup High Grade Index from 1969 to 1972, Lehman Long-Term AA Corporate Index from 1973 to 1975, Lehman Aggregate Bond Index thereafter.
Source: The Vanguard Group
Bear market survival tips to consider:
For more information
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