While there is no official definition,a bear market has traditionally beendefined as a 20% decline in a broad stock market index. Since the end of World War II, wehave had 13 bear markets with an average decline of about 30%. Needless to say, bear markets can be horrifying. 6 Personalized Home Decor ideas It has been eight years since the end of the last bear market, and the next one is coming. Unfortunately, I have no idea when.
It could arrive this year, next year, or five or 10 yearsfrom now when stocks are worth much more than they are today. So as investors, what do we do? First, we develop a well-thought-out financial planthat not only takes into account the inevitability of bearmarkets but actually expects them to occur. When you don’t live near your vacation rental, managing it can be tricky. HomeAway understands which is w… This plan will prevent you from turning temporary paper losses into permanent economic damage. And second, remember that bear markets are necessary. Historically, stocks have significantlyoutperformed less risky investments,such as treasury bills.
And why is that? Because of risk. In other words, it’s the volatilityof stocks, the same volatility thatproduces those horrifying bear markets, thatis the very reason that stocks tendto earn so much more than those less risky investments. Take away the bear markets, and you take awaythe higher returns. So don’t try to avoid bear markets. And don’t anxiously hope them away. Instead, plan for them and accept them,embrace them, and appreciate themas a necessary part of investing.