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Bear vs. Bull Market: Investment Opportunities Thumbnail

Bear vs. Bull Market: Investment Opportunities

The idea of investing in a down market may seem like a scary thought, but historically, bear markets have presented excellent investment opportunities. Why? Take a look at the data below.

Disclosure: This information was prepared by First Trust to distribute to the public as educational information only. First trust is not affiliated with nor controlled by Voya Financial Advisors, Inc. The opinions/views expressed within are that of First Trust and do not necessarily reflect those of Voya Financial Advisors. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither Voya Financial Advisors nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions. Past performance does not guarantee future results. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor

A Lesson from History

A bear market is characterized by the price of an investment falling at least 20% or more. Yes, they are brutal, BUT as the chart above illustrates, “bulls” have a tendency to charge back. For example, take a look at the market during December 1961 – June 1962.   The market went down 27% during those 6 months. Now look what happened to the stock market preceding that time period (June 1962 – Feb 1966.) The market went up 85%. 

Most recently, The Great Recession is another great example (October 2007 – March 2009). The S&P 500 lost 54% of its value, but what did it do from that point on? It went up almost 100% inside of five years. You’ll see the same pattern for all the time periods listed above.

Investment Opportunities  

Investing in these bear markets whether it be through your employer sponsored plan, or additions to other non-retirement investment accounts, usually results in a great return.   Often times, markets anticipate a worst-case economic scenario and as a result, stock prices can drop significantly.   These significant price declines represent an opportunity for individuals to purchase shares at substantial discounts to previous prices.  

The challenge

It’s not so easy to time a market bottom. Will today be the worst day of the market, or will tomorrow’s negative news cause the market to drop even more? Truthfully there’s no way to tell. But what we do know is that proceeding a bear market has been a bull market that time and time again resulted in substantial returns.