From March 2009 to March 2020, the S&P 500 increased by 400% and gained over $18 trillion in value. The National Bureau of Economics (NBER) will officially announce a recession when gross domestic product (GDP) — which correlates with a bear market — declines for at least two consecutive quarters. Market timing is notoriously difficult, and you never know when the market is going to hit its bottom. That way, when markets rebound, as they always do, the investor does not have to “time the market” or find an optimal point in which to jump in. But by the time everyone agrees that point is reached, the bull market may not last too much longer.
How to invest during a bear market vs. bull market
There’s opportunity, if you know where to look and don’t get scared off by a rampaging bear. As for which investing strategies to employ, different sectors tend to outperform over various periods in a bull market. Early on, cyclical sectors like financial stocks and industrial stocks tend to outperform as they are most sensitive to interest rates and economic growth. No one can predict the 5 major stock investing strategies for value investors when markets will rise or fall, but it’s good to be aware of the differences between bull markets vs bear markets. That’s why financial advisors recommend you revisit your portfolio many times over your life to adjust your portfolio allocation and to rebalance as needed. That may mean buying or selling different securities to maintain an appropriate mix of stocks, bonds and cash to meet your financial objectives and risk tolerance level.
In turn, businesses increase production, hire more employees, and raise prices. By employing a dollar-cost averaging strategy of investing a fixed dollar amount over regular periods, investors can lower their average buy-in cost. If you’re unsure of how to rebalance your portfolio appropriately to match your timeline and willingness to take on financial risk, check out our guide to retirement savings here. You may also want to consult with a financial advisor to make sure you have the right diversification and investment mix.
“Bull Market” vs. “Bear Market”: What Do These Financial Terms Mean For Your Wallet?
Setting limits via the app of an online broker such as TradeStation can help give you the information and discipline to sell when you’ve reached your target for a given holding in your portfolio. Because the market’s behavior is impacted and determined by how individuals perceive and react to its behavior, investor psychology and sentiment affect whether the market will rise or fall. In a bull market, investors willingly participate in the hope of obtaining a profit. This is because the value appreciated due to the rupee cost averaging feature over the long term. In SIP mode, irrespective of the market condition, an investment of INR 10,000 was made monthly and a number of units were purchased. Effectively, during the bearish periods, more units were bought and during bullish periods, the value grew.
The most recent bear market, which started in March 2020, was exceptionally short, ending in August when stocks closed at record highs. The previous bear market, the Great Recession, on the other hand, didn’t see a recovery for about four years. Usually, a bull market happens when the economy is strong or getting stronger. High employment rates, high gross domestic product, and other measures of economic well being and stability are generally thought to correlate with bull markets. In this article, we’ll explain bull markets and bear markets, the differences between them, and what they mean for everyone—not just stock traders. Bull markets, on the other hand, can trigger a sense of euphoria as you see stock prices surge.
What Lasts Longer, a Bull Market or a Bear Market?
A bull market is when a major stock market index rises at least 20% from a recent low. With a bull market, stock prices steadily increase, correlation of treasuries with stocks and investors are optimistic and encouraged about the stock market’s future performance. Investors who purchase stocks or other holdings during a bear market must be prepared for the prices of these holdings to drop further before bottoming out. Using a robo advisor like M1 Finance will enable you to keep your investing costs low.
During the bear market fueled by the financial crisis of 2008 that included a major crash in the housing market, virtually every market sector was impacted. There were few if any safe havens for investors in the bear market that ended in early 2009. For example, the bear market that began in 2000 and extended into 2002 was largely fueled by the “bursting of the tech bubble.” It was then exacerbated by the tragic events of 9/11 and the aftermath. During this bear market, there were sectors that still did well for investors.
- It’s not uncommon for this to happen during or right before recessions or periods of high unemployment.
- At the beginning of the period from Jan 2000 till May 2003 and after that from September 2010 till September 2013, the markets did not show any trend.
- It’s easy to interpret the two terms as they are essentially opposites of one another.
- From March 2009 to March 2020, the S&P 500 increased by 400% and gained over $18 trillion in value.
- Markets rise and fall and phases of bull runs and bear periods occur; how you maneuver the journey will determine whether you are going to emerge a winner or a loser.
Even if you do decide to invest with the hope of an upturn, you are likely to take a loss before any turnaround occurs. Thus, most of the profitability can be found in short selling or safer investments, such as fixed-income securities. The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term. Whether or not there is going to be a bull market or a bear market can only be determined over a longer time period. In other words, many investors wish to buy securities, but few are willing to sell them.
The Bottom Line on Investing Through Bear and Bull Markets
On the other hand, “bull” is believed to come from the idea that provoked technical analysis of euro bulls to charge at full speed. Confident investors can’t predict where the stock market is headed, but that doesn’t stop many from sprinting ahead. Once they no longer have an active income stream, many people shift their investing strategies to preservation instead of growth. That generally means making your investments more conservative, or cash-, bond- and fixed-income-based, than you have before. Using the term bull market is informal—there’s no formal metric to measure or determine when a bull market is happening. Still, a 20% increase in prices is often used as the ballpark figure that indicates a bull market.
This is perhaps the biggest risk that an investor might face in a bull market. Ideally, as investors see what appears to be the start of a bull market, they might buy stocks, stock mutual funds, and ETFs. As the bull market surges higher, they might consider selling some of their equity holdings.
The average length of a bear market is just 289 days, or just under 10 months. For investors who are nearing or entering retirement at the start of a bear market, a severe downturn can put a real crimp in their financial plans for retirement. A potential downfall for investors in a bull market is a reluctance to sell and take profits. Especially in a prolonged bull market, investors can forget the pain they experienced in the last bear market and feel like the bull market will never end.
A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs. Therefore, while investing, do not worry about which phase you are investing in, as long as you invest for the long term. Markets rise and fall and phases of bull runs and bear periods occur; how you maneuver the journey will determine whether you are going to emerge a winner or a loser. The stock of Kingfisher airlines (Graph 2) in 2006 was at INR 76 and later in 2007 it reached its peak of INR 300+ only to fall drastically and never recover.
Bear markets can certainly spark anxiety among investors as no one likes to experience losses. Some of the best strategies investors can employ to protect their portfolios during times of uncertainty are with defensive plays, like those found in utilities, consumer staples and healthcare stocks. It’s impossible to know exactly when a bull market will start, but one way for investors to prepare for the next one is to keep buying high-quality stocks, even when they are falling. Since World War II, it has taken about two years on average for the stock market to recover, or reach its previous high.
While you should try not to sell during a downturn, a bear market may also provide a reminder to revisit your investing strategy once the market recovers. Even though you know a market recovery will happen, you may realize that your willingness to take on risk is less than you thought. The longest bull market lasted from 2009 to 2020 and resulted in stock growth of more than 400%.
As an investor, the direction of the market is a major force that has a huge impact on your portfolio. So, it’s important to understand how each of these market conditions may impact your investments. During the expansion phase of the business cycle, businesses steadily grow their profits as consumer demand for goods and services increases.