If you’re mildly familiar with investing, or you’ve listened to the evening news once or twice, you’ve probably heard the terms bull and bear used to describe market conditions. You might be wondering, “What do animals have to do with my money and why should I care?” Lots, it turns out.
What are bull and bear markets?
If you’re investing for the long-term, the daily market ups and downs are most likely noise you may choose to ignore, but longer-term trends can affect your returns. On the other hand, if you're a short-term investor, daily market fluctuations may have more of an impact on your investments. Financial markets go through cycles of boom and bust—highs and lows.
In investment terminology, you’ll hear these high and low cycles called bull and bear markets.
Simply put, these terms are used to describe how the stock markets are doing over a certain period of time.
Bull markets are extended periods of strong gains—think of a bull with its horns pointed up and ready to attack.
Bear markets are important to watch out for, especially if you’re at or near your investment goal.
The last two bear markets lasted an average of about 8 months and the market averaged a loss of roughly 40%.1
What would happen if, for instance, you reached retirement and began withdrawals from your portfolio in the same year a bear market arrived? Any losses you suffered would lower your portfolio value and leave you less money for income in retirement.
Bull stock markets have historically been longer and stronger than bear stock markets. Not investing in the stock market, or investing too conservatively during bull markets, may be a risk—especially for younger investors. Not participating in bull market gains can be a missed opportunity to grow your savings.
What to do in a bull market or bear market?
In general, if your investment goal is quite a few years away, you may choose to ride out the market changes. It can be tempting to sell your investments to avoid downturns, but it can be difficult to time it right. If you sell your stocks and don’t invest money back in the market, it can be a challenge to catch up. Missing just a few of the best days in the market may have a significant impact on your investment performance.
Market trends are continually changing. It’s important to stay consistent with your investment strategy, but understanding bull markets and bear markets can help you make investing decisions that work for you. And, working with a financial consultant can help you keep emotions in check, whether the market is a bull or a bear.
1 2019 Invesco Bull and Bear markets—historical trends and portfolio impact.
The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment.
The S&P 500 Index is an unmanaged index, which is widely regarded as the standard for measuring the U.S. stock market performance. It represents the 500 most widely held publicly traded companies.
It is not possible to invest directly in an index.
Investing involves risk, including possible loss of principal. Past performance does not guarantee future results.
Asset allocation and diversification do not ensure a profit or protect against loss.
The subject matter in this communication is educational and is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.