Financial Planning Fridays #11: Bull vs Bear Markets

Today, in our eleventh episode, we wanted to talk about bull and bear markets and show you a few examples from recent history that may help us to get a better understanding of the current market and where it may be headed next.

A bear market is a term used to describe stocks when they are down 20% or more from their peak. The S&P 500 is now down about 23% as of today, October 18, 2022, and we are officially in a bear market.

This chart from Vanguard shows the nine bear markets since 1980. They had an average decline of 28% and lasted an average of 236 days, or roughly eight months. The reason for the bear markets have generally been different each time. Since 1980 we have had mortgage rates above 17%, Black Monday where the market fell 22% in one day, the bubble bursting, 9/11, the global financial crisis and a worldwide pandemic. Around the time of each of these events, we experienced bear markets, and each time felt very different and very uncertain.

However, the average subsequent bull markets after those bear markets had an average total return of 99% and lasted 852 days, a little more than two years. These bull markets have had a much larger impact on long-term returns than the bear markets that preceded them. This is one reason why we believe so strongly in staying invested through a disciplined investment and rebalancing strategy.

During the past 42 years, despite all of these temporary disasters and market declines, the S&P 500 continued to move higher with an average annual return of about 10.5%. A $10,000 investment made in the S&P 500 on January 1, 1980 would be worth more than $700,000 today.

And just like today, in order to get those returns, you would have had to ignore lots of negative press and stick to your investment plan throughout all the uncertainty.

Here, we have the famous cover of BusinessWeek in August 1979—right before the chart we just reviewed started. The cover story was “The Death of Equities- how inflation is destroying the stock market.” Sound familiar?

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