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.
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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.
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.
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.