Should You Still Invest if a Bear Market Is Coming? History Offers a Clear Answer.

Most people think the key to successful investing is picking the right stocks and aiming for maximum returns. In reality, it's what investors do during falling markets, not rising ones, that will likely matter the most in determining what kind of returns you can achieve.

Many people fall into a familiar pattern when stock prices are dropping. They watch the price go down for a little while, decide they can't take it anymore, and sell. They want to wait for when "things get better" before buying back in.

Unfortunately, that behavior does a lot of damage. What these folks end up doing is locking in losses while missing out on the subsequent recovery. And it's a big reason why investor returns consistently lag market returns over time.

But if you stay the course and continue forward with your automatic investment plans, you can actually improve your long-term returns.

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Bear markets tend to reward people who keep investing

The last three recessions in the United States show just what good buying opportunities these bear markets provided.

2022

This pullback was fueled by soaring inflation and interest rates, which caused a historic, simultaneous bear market in both stocks and bonds. Long-term Treasuries have yet to recover, but the S&P 500 (SNPINDEX: ^GSPC) has gone on to string together several consecutive years of double-digit returns.

U.S. stocks were down more than 25% at one point. But investors who kept buying picked up shares at significant bargains right as we were heading into the artificial intelligence (AI) boom.

2020

The rapid descent of stock prices at the start of the COVID-19 pandemic and swift reversal were the biggest enemy for investors. Investors hadn't seen a violent crash like this since 1987. But once the multitrillion-dollar stimulus package was announced, the S&P 500 was back at all-time highs within a few months, after a decline of more than 30%.

Given that this entire roundtrip took place in only about six months, there wasn't much time to take advantage of discounted prices. Being able to just sustain through this generational event was the real win.

2008

This is the deepest and longest of these three bear markets. It was an especially big test for investors because there was genuine concern the U.S. economy might not survive. The S&P 500 bottomed out with a loss of nearly 60%, and the index wouldn't hit a new high for another four years.

It's hard to believe now that you could have bought shares of some of the big banks for just a couple bucks, but that was the available buying opportunity. It would have taken a high degree of discipline, but anyone who kept investing monthly would have enjoyed huge gains on those purchases near the bear market bottom.

What history says to do if a bear market is coming

The timing will always be unknown, but the lesson is to continue investing regularly if you have a long time horizon.

Bear markets will create losses for your existing portfolio. Historically, however, the S&P 500 has recovered from every bear market and rebounded to reach a new all-time high. In the meantime, those purchases you keep making can enhance your portfolio's long-term returns.

In these cases, those who demonstrate the best discipline often come out ahead.

David Dierking 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.