Since the S&P 500 index of the 500 largest U.S. stocks set a record high on June 20, many people are wondering how much longer the bull market can last. Markets started their climb in March 2009, and we have not had a bear market since then. This is the longest bull market so far. Nobody knows how long the growth will continue. But we do know a few things about bear markets.
1. It’s not a bear market until we see a 20 percent drop from record high close to record low close. Fourth quarter 2018 was bad, but not quite a bear market. The decline stopped just short of 20 percent.
2. Market volatility is normal. Despite an average market drop of 13.9 percent from a peak to trough in the annual S&P 500 company index, returns are positive 29 out of the last 39 years, according to J.P. Morgan. And the average return over that time has been 8.4 percent. This illustrates that stocks behave like a yo-yo on an escalator. They go up and down in the short term and steadily upward over the long term.
3. Stocks lose 36 percent on average in a bear market and they gain more than 108 percent in an average bull market, according to Ned Davis Research.
4. Bear markets are normal. They come about every three-and-a-half years. The S&P 500 index has produced 25 bear markets in the last 90 years.
5. Bear markets are short. They average 299 days – about 10 months. Bull markets average about 989 days – 2.7 years.
6. Bear markets come slower since World War II. From 1928 to 1945 there were 12 bear markets, about one every 1.4 years. Since 1945 there have been 13 bear markets – about one every 5.6 years.
7. You can expect 14 bear markets in your investing life. If you assume a 50-year investing life from age 20 to age 70, you will see about 14 bear markets come and go.
8. Bear markets don’t mean an economic recession. Since 1929, there have been 25 bear markets and 14 recessions. Remember, a bear market is a measure of the markets. A recession is a measure of the economy. They are not the same thing.
If you have questions about bear markets and how to reach your financial goals in spite of them, you might want the help of a CERTIFIED FINANCIAL PLANNER™ professional.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
1. Is the advisor always the client’s advocate – a fiduciary advisor?
2. Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-only, CFP® professional can help you make great financial planning choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.