WiserHours
Menu

Follow your curiosity

Stay the course · Lesson 10 of 11

When Markets Fall: Bear Markets and Staying Calm

Learn what a correction and a bear market are, how long recoveries have taken, and how to write a calm plan before a fall.

FREE LESSON
Cover picture for lesson 10: When Markets Fall: Bear Markets and Staying CalmVideo coming soon
The video is not out yet. The written lesson below has the same content.
THE WRITTEN LESSONFollow along at your pace

At some point, your investments will fall, sometimes a lot. In this lesson you will see how often that happens, how long recoveries have taken, and how to stay calm when it does. The figures are past US results. They show a range of what has happened, not what will happen.

The words for a fall

A drop of 10 percent or more from a recent high is called a correction. A fall of 20 percent or more is usually called a bear market. These are just labels, and nobody officially declares them.

A line that rises to a recent high and then falls. Dashed lines mark minus 10 percent, labeled correction, and minus 20 percent, labeled bear market, with a note that says Just labels.(opens the full-size picture)
Two labels for two sizes of fall.

Falls are normal

Bear markets are a normal part of investing. One count finds 27 of them in the US since 1928. On average, they have lasted about ten months. The rises in between have lasted much longer, about two and a half years on average.

A long chart of US prices from 1928 to today, trending upward with many sharp red dips, headed 27 falls of 20 percent or more. Labels say falls last about 10 months on average and rises about 2.5 years.(opens the full-size picture)
Many dips, and a long climb in between.

How long recoveries took

Recoveries have varied a lot. After the 2020 crash, US stocks were back to their old high in about six months. After 2008, it took about five and a half years. After 1929, it took about 25 years. History gives a range, not a timetable. Nobody can tell you in advance whether the next fall will be short or long, which is why the plan below matters more than any guess.

Three bars of time to get back to the old high on US prices: the 2020 crash, about 6 months; 2007 to 2009, about 5.5 years; 1929, about 25 years. A label says A range, not a timetable.(opens the full-size picture)
The wait to get back to the old high ranged from months to decades.

The halving maths

Falls are also harder to recover from than they look. If an investment halves, it has to double to get back to where it was.

A stack of 100 dollars falls by 50 percent to 50 dollars, then needs a 100 percent rise to become 100 dollars again.(opens the full-size picture)
A 50 percent fall needs a 100 percent rise to repair it.

Our own reactions

Often, the biggest danger is our own reaction. People tend to sell after falls and buy after rises. In one study of US funds over ten years, investors earned about 1.2 percentage points a year less than the funds they owned, mostly because of when their money went in and out.

A price line with Sell marked at the low and Buy marked near the high, beside two bars for US funds over ten years to 2024. What the funds earned is 8.2 percent a year and what investors earned is 7.0 percent, labeled About 1.2 points a year less.(opens the full-size picture)
Selling low and buying high cost investors in this study.

Plan while it is calm

Keep money you will need soon out of the market. Spread your money widely. And write down what you will do in a fall. For example: I will keep my monthly payments going, and I will not sell in a panic.

A card headed If my investments fall with four ticked lines: Money for soon, kept in savings; Spread widely; Keep my monthly payments going; No panic selling. Beside it are a savings jar, a basket, a monthly calendar and a calm face.(opens the full-size picture)
A short plan, written before you need it.

YOUR TURN

Read more

  • Bear Markets Explained: what counts as a bear market, how the counts differ and how long past falls and recoveries lasted.
  • The Behavior Gap: why investors can earn less than the funds they own, and what helps.
Read the full lesson script

At some point, your investments will fall, sometimes a lot. In this lesson, you'll see how often that happens, how long recoveries have taken, and how to stay calm when it does.

A drop of 10 percent or more from a recent high is called a correction. A fall of 20 percent or more is usually called a bear market. These are just labels, and nobody officially declares them.

Bear markets are a normal part of investing, so a fall does not mean something has gone wrong with your plan. One count finds 27 of them in the US since 1928. On average, they've lasted about ten months. The rises in between have lasted much longer, about two and a half years on average.

Recoveries have varied a lot. After the 2020 crash, US stocks were back to their old high in about six months. After 2008, it took about five and a half years. After 1929, it took about 25 years. History gives a range, not a timetable.

Falls are also harder to recover from than they look. If an investment halves, it has to double to get back to where it was.

Often, the biggest danger is our own reaction. People tend to sell after falls and buy after rises. In one study of US funds over ten years, investors earned about 1.2 percentage points a year less than the funds they owned, mostly because of when their money went in and out.

So plan ahead, while things are calm. Keep money you'll need soon out of the market. Spread your money widely, so one bad holding hurts less. And write down what you'll do in a fall. For example: I'll keep my monthly payments going, and I won't sell in a panic.

So remember: falls of 20 percent or more are normal. Recoveries have taken months or years, and the past can't promise the future. And a plan written in calm times helps you hold on. Before the next lesson, write two sentences on what you'll do if your investments fall by a fifth. In the last lesson, you'll learn to spot scams, and you'll put your whole plan together.