Bear Market Fears Are Back. History Says This Proven Strategy Can Protect Your Investments.
Key Points
Bear markets are a natural part of the stock market cycle, so investors should expect them.
Remember that major indexes have rebounded from every bear market they have experienced.
Dollar-cost averaging helps investors avoid trying to time the market and keeps them consistent.
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CNN's latest "Fear and Greed Index," which offers insight into the emotions driving the stock market, shows fear is currently driving investor sentiment. In the days leading up to the midterm elections, the metric was in the "extreme fear" range.
Although markets reacted positively to the midterm results, one elephant in the room is still fears of a potential bear market in the near future. Those fears have lingered much of this year, as investors worry about a potential AI bubble and ongoing geopolitical events, but they've intensified after the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) finished October in the negative.
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Only time will tell when a bear market happens, but history has consistently taught one lesson: staying the course is almost always the best route for most investors.
Image source: Getty Images.
Down but never fully out
Bear markets are defined as declines of at least 20% in major indexes from recent highs, and, for better or worse, they're inevitable. Knowing that, when approaching or in a bear market, the best thing investors with time on their side can do is to continue investing as usual.
I'll be the first to admit that it's easier said than done, but it's effective. The reason: The market has bounced back from every bear market it has ever experienced. For perspective, here are the S&P 500's past 10 bear markets and how much the index is up since then:
| Bear Market Timeline | Decline From Peak to Trough | Gains Since Trough |
|---|---|---|
| Jan. 3, 2022 to Oct. 12, 2022 | (25.4%) | 111.6% |
| Feb. 19, 2020 to March 23, 2020 | (33.9%) | 238.3% |
| Oct. 9, 2007 to March 9, 2009 | (56.8%) | 1,018.6% |
| March 24, 2000 to Oct. 9, 2002 | (49.1%) | 874.3% |
| Aug. 25, 1987 to Dec. 4, 1987 | (33.5%) | 3,279.8% |
| Nov. 28, 1980 to Aug. 12, 1982 | (27.1%) | 7,289.2% |
| Jan. 11, 1973 to Oct. 3, 1974 | (48.2%) | 12,051.6% |
| Nov. 29, 1968 to May 26, 1970 | (36.1%) | 10,822.2% |
| Feb. 9, 1966 to Oct. 7, 1966 | (22.2%) | 10,238.8% |
| Dec. 12, 1961 to June 26, 1962 | (28%) | 14,364.8% |
Source: YCharts. Gains are based on the S&P 500 closing level on Nov. 3.
The same trend also applies to the Nasdaq Composite. Below is how much it has bounced back since bottoming out during its past 10 bear markets:
| Date Range | Decline From Peak to Trough | Gains Since Trough |
|---|---|---|
| Dec. 16, 2024 to April 8, 2025 | (24.3%) | 66.2% |
| Nov. 19, 2021 to Dec. 28, 2022 | (36.4%) | 148.4% |
| Feb. 19, 2020 to March 23, 2020 | (30.1%) | 269.8% |
| Aug. 29, 2018 to Dec. 24, 2018 | (23.6%) | 309.7% |
| Oct. 31, 2007 to March 9, 2009 | (55.6%) | 1,899.9% |
| March 10, 2000 to Oct. 9, 2002 | (77.9%) | 2,177.3% |
| July 20, 1998 to Oct. 8, 1998 | (29.5%) | 1,687.9% |
| Oct. 9, 1989 to Oct. 16, 1990 | (33%) | 7,694.8% |
| Aug. 26, 1987 to Oct. 28, 1987 | (35.9%) | 8,594.1% |
| June 24, 1983 to July 25, 1984 | (31.5%) | 11,161.4% |
Source: YCharts. Gains based on the Nasdaq Composite closing level on Nov. 3.
Past results don't guarantee future performance, but there's no reason to think this won't continue in the long term. Abandoning investing during these bear markets could (and likely would) have meant missing out on valuable gains once the indexes rebounded.
Help yourself help yourself
It can be tempting to see all the noise in the stock market and try to time your investments accordingly, but that's one of the more counterproductive moves investors can make. Nobody can predict how the stock market will perform, regardless of whether you're an everyday investor or a billion-dollar Wall Street firm with seemingly unlimited resources. If we could, there would be a lot more millionaires floating around and a lot fewer people losing money.
To help fight the urge to time the market, the strategy I always encourage is dollar-cost averaging, which is essentially putting yourself on a set investing schedule and sticking to it regardless of what's happening in the market.
Say, for example, you have $400 to invest monthly in an S&P 500 ETF. You can choose to invest $100 weekly, $200 biweekly, $400 monthly, or whatever best fits your financial situation. More important than when is sticking to a set schedule. This helps remove a lot of the emotion from investing.
Again, nobody knows when a bear market will happen. It could be in the coming months, or years away. Instead of trying to predict it, stay the course with your investing and trust that, if anything, investing during a bear market is a way to grab great investments at much lower prices than before. It's one strategy that has stood the test of time.
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Stefon Walters 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.
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