Tahoe-Truckee Market Beat: We’re overdue for a bear market
Special to the sun
The stock market goes through cycles of gains and losses referred to as bull and bear markets. Currently, we are in a bull market phase that has lasted over six years, and the S&P 500 has gained over 200 percent during that time since it bottomed out on March 9, 2009.
On average, bull markets last longer than bear markets and produce greater gains than the losses that are experienced during bear markets, but bear markets can still be quite painful.
In just the last 15 years, we’ve seen two bear markets that have produced losses of over 50 percent. They ran from years 2000-2002 and 2007-2009, when the current bull market began.
The generally accepted definition for a bear market is considered to be a price decline of a major market index of more than 20 percent that lasts more than two months.
If the drop lasts less than two months, then it’s considered to be a “correction’ instead of a bear market.
Younger investors should look forward to bear markets because it gives them the chance to buy stocks for the long term at a reduced price.
Historically, buying into bear markets and holding for the long term has produced very good results.
Older investors near or in retirement with substantial nest eggs built up should be cautious about bear markets because they are at a time in their life when a serious market downturn could have an adverse impact on their retirement plans.
At this point, statistically we’re overdue for a bear market, but no one knows for sure when the next one will begin, how long its duration will be, or how much of a drop we’ll experience.
It is wise to be prepared for a bear market and have a plan in place that will help reduce your stress and keep you from making emotional decisions that can be harmful to your long-term returns.
It’s interesting where the terms “bull” and “bear” originated. In the early days of California, they used to have bull and bear fights.
The bulls would strike up at the bears with their horns and the bears would stand up and strike down at the bulls with their paws.
That’s why bull markets go up and bear markets go down.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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