Bear market.
In plain English
A bear market is the standard label for a major drop, usually defined as the S&P 500 (or another major index) falling at least 20% from its most recent high. They typically last a few months to a couple of years, though the average has historically been about 10 months. They are followed, eventually, by recoveries, often sharp ones.
The opposite: Bull market
A bull market is prices rising over months or years. A bear market is the same market falling 20% or more from its recent high.
Say you hold $10,000 in a broad index fund. In a bull year with a 20% gain, it grows to $12,000. In a bear stretch with a 20% drop, the same $10,000 falls to $8,000. Same fund, same investor. The only thing that changed is the market's direction.
The drop math is harsher than it looks. After falling to $8,000, the fund needs a 25% gain, not 20%, just to get back to $10,000.
01Why it matters
Bear markets feel terrible, but they're a normal feature of long-term investing, not a malfunction. The investors who do best are usually the ones who do nothing during them. Pulling money out when things are down locks in the loss and locks you out of the recovery.
02The math, step by step
From January to October 2022, the S&P 500 fell about 25%: a bear market. By January 2024 it had fully recovered. An investor who panic-sold near the bottom in October 2022 missed a roughly 30%+ rebound. An investor who kept dollar-cost averaging the whole time bought shares at lower prices and benefited the most from the recovery.
03What this is NOT
A bear market is about stock prices. A recession is about the broader economy: declining GDP, rising unemployment. They sometimes overlap, but you can have one without the other. A bear market is faster to declare. A recession is usually only declared after the fact.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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