Bear Market Myths Debunked: Separating Fact From Fiction

There may not be a scarier pair of words to see in a financial news headline than "bear market."

A bear market, typically defined as a 20% decline from a broad market index's previous high, can be jarring, especially when the sell-off happens quickly. You only need to recall the news stories in April when President Donald Trump's global tariff announcements sent the market tumbling to understand the fear a bear market can bring.

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However, they're also a healthy and necessary part of the market's cycles, and understanding bear markets can help you navigate them wisely -- or even use them to your advantage. Here are four truths about bear markets that every investor should know.

Image source: Getty Images

1. They usually don't last long

Imagine you're at the start of a roller-coaster ride with your car slowly being pulled higher and higher. Then, you cross the peak and plummet back down at breathtaking speed. That can often be what stock market cycles feel like as they alternate between bull and bear markets.

Like that steady uphill climb, bull markets can last for a while. Between 1949 and 2024, the average bull market in the S&P 500 (SNPINDEX: ^GSPC) lasted 67 months, or just over five and a half years. In contrast, bear markets lasted an average of just 12 months, and the shortest lasted just 33 days. Bear markets may not be fun, but fortunately, they're usually over relatively quickly.

2. Bear market losses pale in comparison to bull market gains

Since bull markets usually last much longer than bear markets, it pays to stay invested. Yes, the declines you'll see in the value of your portfolio during a downturn are discouraging. The average decline during an S&P 500 bear market was 34%, and the 2008 financial crisis was particularly severe with a 59% slump, according to Charles Schwab.

But if you stayed the course, held your stocks, and rode it out until the next bull market, you would have enjoyed healthy gains. Since 1949, the average bull market has seen a 265% gain. Of course, there's no guarantee future results will follow historical patterns, but investors can still take lessons from the stock market's behavior over long periods. Investors should remain optimistic.

Image source: Getty Images

3. You don't want to miss a bear market recovery

One way investors commonly shoot themselves in the foot is by trying to anticipate what the economy or the stock market might do in the short term. Most people fail to grasp how quickly things can change on Wall Street, and the market can pivot long before you realize what's happened.

Historically, the U.S. stock market has tended to roar back following a bear market. For example, after the S&P 500 hit its bottom on March 23, 2020, during the COVID-19 sell-off, the index surged 55% within just five months. In fact, during the five worst bear markets since 1929, the market returned an average of 70.9% in the first year after reaching its bottom.

The tricky part is that it's impossible to know when a bottom has arrived. Some of the strongest market rallies occur during bear markets but wind up being false signals. That's why the best way to ensure you don't miss the best stretches of the stock market's next big rally is to never move your money to the sidelines in the first place.

4. Bear markets aren't as common as you might think

It has become a popular strategy to buy the dip -- add more money to the market after it declines. That works more often than not. Sure, if you buy in the early stages of an extended bear market, it's going to hurt a bit. Fortunately, bear markets aren't as common as you might believe: They occur about once every 3.5 years.

The market fluctuates frequently, but it also rebounds. Declines of more than 10% but less than 20% are called corrections. Since 1974, the S&P 500 has bounced back from 80% of its corrections before they deepened into bear market territory. And on average, the S&P 500 gains over 8% in the first month following a correction, and over 24% after a year. So yes, long-term investors should embrace market declines, whether they're corrections or bear markets, as buying opportunities. History is on your side.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.