History Says the Investors Who Stay the Course During Bear Markets Have Always Come Out Ahead. Here's the Proof.

Bear markets: Investors don't like them, but understandably so. Not only do they last roughly a (miserable) year, on average, but numbers from Stifel suggest that since 1932, the average bear market has dragged the S&P 500 (SNPINDEX: ^GSPC) down 35% from peak to trough. Yikes.

Yet experienced investors know they're going to happen sooner or later -- once about every five years (again, on average), though certainly not with anywhere near that predictable a cadence. Regardless, it's tempting to try to simply sidestep bear markets by being out of the market altogether when they happen.

For the vast majority of investors, though, such a strategy may end up doing more harm than good. Here's why.

A long-term struggle is won with just a few major victories ... which you'll never actually see coming

From a distance, it often looks like the stock market makes enough sense to actively navigate it. As veteran investors can attest, however, that's not the case once you're in it. It's unpredictable from one day to the next. The only way to win is by not trying to predict the near-term ebb and flow. You have to think long-term, when stocks' values become much clearer.

But ironically, most investors' total long-term gains ultimately stem from a relatively small number of single-day gains.

Data from mutual fund company Hartford puts things in perspective: The growth of a $10,000 investment made in an S&P 500 index fund in 1996 would be worth more than $192,000 by 2025, if you had simply left it alone that whole time. Not bad. However, even if you'd just stayed out of the market for its best 10 days during this period, your investment would have only grown to a little over $85,000. That's less than half of what you'd have by just doing nothing.

Here's the rub: Since 1996, nearly half of the market's very best one-day gains happened during a bear market, when few people would have been willing to even entertain the idea of jumping back in for a big one-day score. Never mind the unlikelihood of knowing when those single-day surges might materialize.

Image source: Getty Images.

But will avoiding the really bad days that tend to take shape during bear markets offset the downside of missing out on the dramatically bullish ones? Even if you could successfully predict them ahead of time -- which you can't -- there may be little benefit in doing so. Based on data from Morningstar, wealth management firm Smith+Howard reports that between 1950 and 2020, most of the S&P 500's 15 worst daily losses were more than undone a year later. Specifically, the average daily loss for these 15 days was a stunning 8.8%. However, in all but one case (in 2008), the index was up by double digits within 12 months of that awful day's close.

Staying ready for the unknown is better than attempting to navigate the known

All of this raises the question: Why do investors try to avoid these steep but usually short-lived setbacks? Though not knowing could prove destructive to your portfolio, the answer might be tough to hear: It's ego. Market-timers believe they can accurately identify the market's tops and bottoms, but they can't. The vast majority of the time, the market has a knack for fooling almost everyone.

But there's good news. Once you accept that there are things you can't possibly know about the market, managing a portfolio becomes easier -- you'll limit your actions to those you know you can successfully manage.

Chief among these is maintaining a well-diversified portfolio, with many different stocks spanning several sectors. While part of the purpose is to ensure you have some exposure to a bull market's biggest winners at any given time, there's upside going the other direction as well. That is, a diversified portfolio is likely to lose less net value overall when a bear market takes hold.

That still isn't fun. However, it does make it easier to stick with quality stocks when you need to own them most. That's at the beginning of a new bull market, which no one ever really knows is coming until well after it's underway. As Hartford Funds highlights, more than one-fourth of the S&P 500's 50 biggest single-day gains took shape in just the first two months of new bull markets, when most investors are too timid to trust that the market has made its ultimate bottom. Hartford adds that since 1928, new bull markets have gained an average of 13.6% in their first month and more than 25% in their first three months.

Gains (recovered or otherwise) are just too big and too important to risk leaving on the table.

The bottom line: Just stay the course by owning quality stocks worth owning before, during, and after bear markets. Attempting to navigate the market's unpredictable ebbs and flows has undermined the portfolios of too many investors who were certain that they could do what few people can -- but were wrong.

James Brumley 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.