What Is A Bear Market — Everything You Need To Know

When the market drops more than 20% from its most recent high, we call it a bear market. It's impossible to predict how long a selloff will endure.

During the Great Depression, the longest bear market ran from September 1939 to April 1942. Potentially still fresh in the minds of current investors is that the longest bear market lasted only from February 19, 2020, to March 23, 2020. It's difficult to pin down what exactly triggers a bear market.

There are several causes for market crashes, including geopolitical unrest, excessive inflation, and pessimism among investors. Rising prices, Russian invasion logistics, and the persistence of the Covid-19 outbreak could all be contributing factors to the current bear market. Investors typically face consistent losses when the market is in a bear phase until the economy moves around. Every five to ten years, the stock market has a downturn. A recession may have begun, albeit this is not always the case.

The Best Way To Survive A Market Downturn

Investors must take their time deciding in the face of a bear market. What you can do to protect your investments during one bear market is outlined below.

Do Not Panic

The most delicate advice for dealing with a bear market, whether a novice or a seasoned investor, is to remain calm. In a weak market, many traders are looking to sell their stocks before they lose all value out of fear that the market will continue its downward trend. This approach causes people to lose a lot of money and prevents them from reaching their financial goals down the road. Many people who put money into the stock market don't understand that they haven't lost anything until they sell their holdings.

Investing Money Is Never A Loss As Long As You Still Have It

Simply put, it indicates that the value of your investments is now decreasing. When the stock market drops, some people want to stop investing. After the market recovers, they promise themselves they will resume purchasing. However, this approach is yet another form of market timing.

Even During A Bad Market, You Should Keep Investing

Shares can be purchased at a discount when the economy goes down, allowing you to get a more significant number of shares for the same budget. So, let's see how that works out in practice. One unit of Vanguard's total index fund for stocks (VTSAX) was selling for $117.67 about six months ago, but now it's selling for $96.88 due to the current bear market. Six months ago, $500 would only have gotten you 4.25 shares; now, the same amount of money would get you 5.16. Those nearing retirements are the only ones who need to worry about making any changes to their plan in a bear market. There's probably nothing you need to change if you're at least five years from retiring.

Put Additional Money Into The Investment

The best analogy for a selloff is a cleanup sale at a store you frequently shop at. A sale allows you to acquire additional goods while maintaining your original budget.