Should I be investing in a bear market?

As concerning as they may be, bear markets are a normal part of our economic cycle. But they can leave investors with pressing questions. How long will it last? Are we entering a recession? Should I keep investing?

We can look to history to answer the first two questions. In this Advisors’ Take, we’ll lean on three advisors from Truist’s Client Advisory Center to answer the third.

The anatomy of a bear market

A bear market refers to an extended period of stock price declines that can last months or years. Usually, bear markets describe conditions in which prices fall 20% or more, and they’re often tied to declines in an overall market index like the S&P 500.^{Disclosure 1} Their root causes can be poor economic conditions, geopolitical conflicts, or pandemics.^{Disclosure 2}

A bull market is the opposite—a financial market in which stock prices are rising continuously or are expected to rise.^{Disclosure 3}

Here are some key characteristics of historic bear markets that may help ease concerns:

1. They’re relatively short. The average length is roughly 9.6 months⁴ (compared with bull markets, which can last upward of three years^{Disclosure 5}).
2. They don’t always precede recessions. Since 1928, 14 bear markets have been linked to recessions and 11 have not.^{Disclosure 4}
3. You lose less than you stand to gain. On average, stocks drop 36% in a bear market compared with average gains of 112% in a bull market.⁵

Why you might consider investing in a bear market

So are bear markets a good time to invest? Truist financial advisor Jack Margeson says it shouldn’t necessarily deter you. The key, of course, is longevity.

“No one can time the market or pick an appropriate entry or exit point,” says Margeson. He thinks the people who stand to “win” long term are the ones who have systematic investing habits regardless of market conditions. “This strategy requires you to keep putting money into the market each month, putting those dollars forward.”

Fellow advisor Yanette Sullivan agrees, although she’s aware it may be a hard pill for investors to swallow.

“This is a time where most advisors feel like it’s the best time to buy,” she says of bear markets, “but clients don’t always understand that.”

Sullivan advises people who—understandably—aren’t comfortable seeing the value of their investments drop. During bear markets, investors tend to be less risk-seeking and more loss-averse. But she cautions them against hasty decisions that could potentially result in deeper losses. “The goal is to stay invested. Otherwise, the bear market ends and you’ve lost the opportunity to recoup your losses because you sold out of it too quickly.”

Why systematic investing works

In addition to time in the market, financial advisor Ali Mahbod thinks dollar-cost averaging is the best ally for any investor facing market slumps. “Investing consistently over time can simplify the way you invest and may reduce overall risk,” he says.

Dollar-cost averaging is the strategy of routinely investing regardless of market price.^{Disclosure 6} When people invest regularly in both up and down markets, they have the potential to buy more shares at lower prices. And when the market rises, so does the value of their investment.

“If investors buy low, they’ll benefit from it in the future when markets rise,” says Mahbod. “If the market dips further, they’ll average down their total cost by continuing to buy.”

Robo-advisors like Truist Invest offered by Truist Advisory Services, Inc., let people take advantage of dollar-cost averaging by making routine contributions at specific intervals. Truist Invest puts your contributions into a portfolio of exchange-traded funds (ETFs) based on your investing timeline, risk tolerance, and goals. You can view your portfolio’s performance and adjust your investing profile when necessary to achieve your goals.

But invest within your means

As always, your budget should account for investing in addition to your monthly obligations like housing, food, utilities, and any savings you set aside.

“Learn to live by a budget and spend less money than you make,” says Margeson. “If you’re putting away 20% of your money each year, you could be on the right path to retirement.”

Track your income and expenses to pinpoint any problem areas of excess spending. And avoid “wagering” any of your disposable income on short-term gains. Remember: Investing is long term.

Having a plan can help

A sound financial plan can be a road map that guides investors through challenging economic times, and it may help determine what you need to do to reach your long-term goals.

At Truist’s Client Advisory Center, financial advisors like Sullivan help Truist Invest clients identify their own paths. She helps them create tailored plans that the team of advisors can refer to when guiding clients along their investing journeys.

“Our financial plans stress-test against various scenarios—bear markets, potential recessions, inflation,” says Sullivan. “When you take that into consideration, client conversations shift from what the market is doing to whether or not your financial goals are on target.”