Bull and bear markets are the yin and yang of an investment cycle, two complementary and necessary halves of a whole. In the simplest terms and the most convenient definitions, bear means down while bull means up.
What’s a bear market exactly?
In general, a bear market is widely recognized as a period when major indexes—such as Standard & Poor’s 500-stock index (which tracks the performance of about 500 large U.S. stocks) and the Dow Jones industrial average (which includes 30 of the largest U.S. stocks)—drop by 20 percent or more from a recent peak and stay that low for at least two months.
Since 1926, we’ve survived at least eight bear markets, according to financial advisory firm First Trust. One bear you probably remember all too well: Between October 2007 and March 2009, the S&P 500 tumbled by more than 50 percent. The good news is that each bear has typically lasted for just a little over a year, and stocks have always recovered, historically, and gone on to make significant gains.
And what’s a bull market?
Bull markets can be even more loosely defined as periods of consistently rising stock prices. But many people recognize them as the inverse of bear markets, i.e. when major indexes rise at least 20 percent and continue upward without falling by more than 20 percent from recent highs.
You’ve probably noticed, we’re in one right now. Stock prices rose more than 20 percent in 2009 and have been on a mostly upward course ever since, making this the longest-running bull market in history. And the results have been stellar: Since hitting the bottom of the Great Recession on March 9, 2009, the S&P 500 has risen about 345 percent, as of mid-2019—more than recovering from its preceding bear-market losses. Translation: If you invested $1,000 in an index fund that tracked the index 10 years ago, you’d have $3,450 today, without adding another cent yourself. Not bad, eh?
But how much longer can this bull market last?
It’s true that this bull is looking a little long in the tooth. In fact, the average bull market has lasted 6.6 years and gained an average total return of 334 percent—putting this one well past its expected expiration date. Lucky for us, bulls don’t die of old age.
There are, however, some challenges worrying Wall Street, which is nothing really new. Indeed, throughout this long bull run, stocks have periodically limped forward rather than charged, stumbling over a variety of major factors, including Brexit, rising interest rates and trade disputes — all ongoing threats. Another election year on the horizon is also prone to setting off markets. And of course, day-to-day movements can be pushed by a multitude of smaller incidents, ranging from random tweets posted by the likes of Elon Musk and President Donald Trump to disappointing earnings reports from certain well-followed companies.
Actually, some experts might note that, technically, certain indexes did fall by 20 percent in December 2018, thereby ending the historic bull market. But many others don’t count that drop as an end because the market bounced back so quickly. Indeed, so far in 2019, the S&P 500 is up by about 20 percent. And plenty of people believe this old bull still has some room to run.
Well, can you predict when the next bear market is coming?
Another bear market is likely to happen—at some point. But remember: One thing bear and bull markets have in common is that they’re unpredictable. Even pros who have a good pulse on the market are liable to get it wrong as often as they get it right. After all, nobody can foretell the future, and any number of factors and surprises can throw the market off course.
What does all this mean I should do with my portfolio?
Where we are in the bull-bear market cycle should have little to no influence on your own investing strategy. That should be carefully devised based on your own personal financial situation, including your goals, risk tolerance and time horizon—rather than where you think markets are headed.
That said, market movements shouldn’t necessarily have zero influence on your investing moves. Even if your long-term plans remain unchanged—and you don’t need cash from investments for at least a few years—you still may need to rebalance, as the major stock growth of a bull market, as well as the drops of a bear, can send your portfolio’s asset allocation out of whack. (Acorns does this automatically for customers.)
For example, your financial plan may call for an investment portfolio with a mix that’s 80 percent stocks and 20 percent bonds. But if your stocks make strong gains, as they probably have through this bull market, they’ll account for more of your portfolio. So you may have to sell some stocks and buy more bonds to get back to an 80/20 split.
And maintaining that well-diversified portfolio is clutch when it comes to achieving investing success. With a wide mix of stocks, government and corporate bonds, cash and perhaps other asset types, you and your portfolio can be prepared to make the most of any type of market.
For example, aggressive growth investments, such as small-company and emerging-markets stocks, might capture some big gains during rallies. On the other hand, more conservative holdings, such as investment-grade bonds and Treasuries, should help preserve your wealth during downturns. So having some of each can help ensure you’re ready, come what may. That’s why maintaining a well-diversified portfolio should be a key element of any successful long-term financial plan.
* Investing involves risk including loss of principal. Past performance does not guarantee or indicate future results. This information is presented for educational purposes only and is not a recommendation to buy or sell a specific security or engage in a particular strategy. It is not possible to invest directly in an index.