A Guide to Stock Market Recoveries: Recoveries Have Been Much Longer & Stronger Than Downturns
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A Guide to Stock Market Recoveries: Recoveries Have Been Much Longer & Stronger Than Declines
Bull market = stock market goes up.
Bear market = stock market goes down.
A bull market is a period of time when major stock market indexes (like the benchmark S&P 500 stock index) are rising, with market indexes eventually reaching new highs. Some define a bull market as a 20% gain from recent stock market lows. A fun way to remember a bull market being an “up market” is by picturing a big bull thrusting its horns up into the air.
A bear market, on the contrary, is generally defined as a 20% decline from recent stock market highs. You may remember a bear market being a "down market" by picturing a bear swiping its paw down.
Since 1950, the average bull (up) market has lasted 67 months and provided investors with a gain of 265% while the average bear (down) market has lasted just 12 months and provided investors with a decline of 33%. The difference in returns has been dramatic.
In addition, over the last 73 years, each bull (up) market has been much longer and stronger than the bear (down) market that preceded it with the average bull (up) market lasting more than 5 times longer than the average bear (down) market.
Key Investor Takeaways:
Resilience of Market Recoveries: It's crucial to understand that market recoveries (bull markets) have historically been longer and stronger than downturns (bear markets). Despite the turbulence experienced during bear markets, they are generally short-lived compared to the subsequent recovery periods.
Navigating Market Volatility: During recovery periods, the journey is rarely smooth. However, those who manage to move past the noise, retaining their focus on their long-term investment strategies, have generally found themselves much better positioned when the stock market bounces back.
The Power of Bull Markets: Historical data suggests that, since 1950, each bull market has meaningfully outlasted the bear market that preceded it. This illustrates the formidable power of market recoveries and the long term opportunities they present to stock investors.
Steady Returns: Bull markets have produced impressive returns, averaging a 265% gain. These significant returns underline the potential rewards for investors who stay the course through market volatility.
Conclusion
While past results are not indicative of future outcomes, understanding the historical context can provide investors with a valuable perspective. Being aware of the longer and stronger nature of market recoveries compared to downturns can offer reassurance during challenging bear market (down) periods. It reinforces the importance of patience, resilience, and long-term planning in investing.
As investors, it's vital to bear in mind that periods of market decline are but temporary phases in the larger picture. In the long run, recoveries not only compensate for these downturns but have historically brought about substantial gains for those who endure the shorter term declines. Remember, long-term investing isn't about avoiding storms—it's about learning to sail through them.
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Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.