Inescapable Bear (declining) Markets

“When you’re watching a third or more of your retirement nest-egg disappearing day by day – with every media talking head in the country reporting this as an unprecedented crisis in the economic life of America – you wouldn’t be human if you did not feel a powerful impulse to sell, and go hide out in CDs for a while.”

-Nick Murray, “Simple Wealth, Inevitable Wealth”

Eventually, the next bear (declining) market will occur, and you’ll likely feel fearful. You’ll be tempted to “do something about it”. It’s normal, human nature to feel this way. Below is a brief history of bear markets so that you know how far we’ve come each time one occurred.

For engineers we’ll have a table and for visual learners we’ll have a bar graph (tongue in cheek). Below are the thirteen “arbitrary” bear markets in the S&P 500 since the end of World War II, measuring the market from peak to trough, adapted from Nick Murray’s “Simple Wealth, Inevitable Wealth”. They are arbitrarily defined mainly because perfectionists would say a 20% decline is necessary to define a bear market even though two of them listed are less than this mark.

The next time the media talking heads mention “unprecedented crisis”, you’ll calmly go about your business knowing that it isn’t unique. Part of your investments will temporarily drop in value. You’ll carefully rebalance your portfolio back to its targets by asset category, just like last year, and the year before.

Or, if you have an advisor, you’ll ask them, “Do I need to change my long-term plan?” They will tactfully reply “don’t do that”. You’ll both go back to your business, confident in the perpetual concept that the most profitably run businesses of the world remain a great way to build wealth over decades, just not without the inevitable bear markets along the way.

[Disclosure: Indices (including the S&P 500 Index) mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.]