Significant decreases in stock prices are never a matter of “if” they will happen. They are always a matter of “when.” Bear markets, defined as a 20% decrease in price, occur on a regular basis. On average, they happen once every five years. More than seven years has passed since the last one. Now, investors are waiting for the inevitable.
The last bear market ended on March 9, 2009. That date marks the bottom of one of the most severe market declines most of us have ever faced. From top to bottom, that bottom represented a 57% decrease from the previous high.
It was one of the most severe market declines most of us have ever seen in our investing lifetimes. The mental scars from the experience still impact our thought processes.
Since that point, the stock market—as measured by the S&P 500—has increased nearly 400%. This means $10,000 invested on March 9 grew to over $43,600. There were five corrections along the way, one of which almost qualified as a bear market.
To many, this bull market seems to be living on borrowed time. And, it probably is. Many began holding their breath and bracing for impact months ago. But, we keep waiting as the stock market refuses to correct.
Bear markets make being a successful long term investor difficult. The decreases in your account values create stress. The longer they continue and the deeper they cut increases the frustration. They test your patience and your commitment to your long term financial goals.
We know the bear market will come. But we never know when or how far it will go down. This current bull may run for quite some time. (You can find some strong cases for why it might, too).
The predictions of doom and gloom will continue until they are eventually correct. In the meantime most of us will be more in this mindset.