Staying Invested During ALL Market Cycles

Maura Schauss |

By Maura C. Schauss, CFP® & Todd I. Youngdahl, CFP®

Wow, what a month it has been!  Our market reached the status of “longest bull market since World War II” this fall. (1) This has made December’s volatility feel particularly painful and, for some, frightening. It’s important to understand that markets go through tough times and why it’s critical to the success of your portfolio, to stay invested.

What Can We Expect From A Bear Market?

A bear market is generally defined as a market downturn with 20%+ losses over a period of two months. (2) Lesser market declines (of 10% to 20%) are simply called corrections and are still considered a part of a bull market. Though there’s no way of knowing what the next bear market will bring us, we can look at what has happened in the past.

Since 1950, there have only been 10 bear markets, though there have been 26 additional corrections. Of those bear markets, the shortest one lasted only 87 days in 1990 and the longest went on for 929 days from 2000 to 2002. On average, the bear markets lasted 394.2 days, or about 13 months. (3)

Will The Bear Eat Your Portfolio?

While 13 months doesn’t seem as intimidating as a live grizzly bear, what will your portfolio look like when you come out on the other side? The average market loss during those 10 bear markets since 1950 was 34%. If that sounds low compared to your memory, it’s because the two greatest losses of 49% and 57% were the most recent ones in 2000 to 2002 and 2007 to 2009, respectively.

There’s no denying that those are staggering losses. But they don’t have to be permanent losses. The market has recovered every time, with cumulative gains far surpassing any losses. In the end, it’s not the bear market itself that will eat your portfolio, but it’s when you run and hide at the wrong time.

How To Survive The Bear

In the face of a bear market, many people run and hide by cashing out their investments. That is the exact wrong thing to do. Bear markets only ruin fortunes when people lock in their losses by selling instead of riding it out. Those that stay invested during the tumultuous times are the ones that end up on top.

Just like there is no way of knowing when the market will take a turn for the worse, there is no way of knowing when it will shoot back up again. Those that cash out their investments during a market downturn are usually too late to miss the market’s worst days but do unfortunately end up missing the market’s best days.

But how big of a difference does that even make? Would missing a couple of days of big gains really make a difference over the long run? It’s amazing how much of a difference it does make. The chart below shows how an S&P 500 investment of $10,000 over the last 20 years would perform. Then it shows the difference in results when the best 5, 10, 20, and 40 days of market returns are removed. Missing only the best 5 days, one week over a 20-year span, nearly cuts your returns in half.

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It isn’t the bear market itself that will eat your portfolio, it’s missing out on the ensuing upswing. And the only way to keep from missing out is to stay invested no matter what the market does. The two worst bear markets in recent history, as we discussed above, happened during the time period that the above chart covers. Yet the investor who stuck it out, even when the market dropped 57%, ended up with an over 7% return overall.

How We Can Help

The best thing you can do is prepare yourself for a bumpy ride and commit to staying invested for the long haul. It’s also a good idea to review your portfolio to make sure it is properly diversified and represents a risk level with which you are comfortable. If you have questions about your portfolio or would like a complimentary review, call Washington Wealth Advisors at 703.584.2700 or email

About Washington Wealth Advisors

Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.