It's been a tough year for investors, as stock prices continue to fall. The S&P 500 is down more than 24% from its peak in early January, and the Nasdaq and Dow Jones Industrial Average are also in bear market territory.
This type of volatility can be unnerving for even the most experienced investors, especially when there's no light at the end of the tunnel just yet.
While each bear market is different and nobody knows exactly how long this downturn will last, history can provide some hints -- and give us one important reason to be optimistic.
How long does the average bear market last?
Again, each market downturn will be slightly different. However, there are a few important insights we can glean from past S&P 500 bear markets.
- The longest bear market in history occurred in the wake of the dot-com bubble burst in the early 2000s, lasting a total of 929 days.
- The shortest bear market lasted just 33 days, in the spring of 2020.
- Since 1928, the S&P 500 has experienced 21 bear markets (not including the current downturn). That's approximately one every 4.5 years, on average.
- The average length of a bear market is 388 days.
- Excluding the longest and shortest bear markets, the average length is around 330 days -- or just under one year.
The S&P 500 began its descent in early January, but it didn't officially enter a bear market until June 13, 2022 -- or 121 days ago, as of this writing. If this bear market follows a similar path to those in the past (which is a big if), it could potentially be a few more months before the market bottoms out.
While this may not be the most encouraging news, history also provides one reason to be exceedingly optimistic right now.
The good news about bear markets
While we don't know exactly how long this market slump will last, we do know that things will get better.
Every single bear market in history has eventually given way to a bull market. In fact, not only has the market recovered from downturns, but it's gone on to see positive average returns over time. Since 2000, for example, the S&P 500 is up by more than 145% -- despite experiencing four bear markets in that timeframe.
Bear markets aren't easy to stomach, and it can be emotionally challenging to keep investing when stock prices are falling. But by maintaining a long-term outlook, it will be easier to push through these periods of volatility.
Keeping your investments safe
Nobody can control how long a bear market lasts, but there are steps you can take to protect your money -- regardless of what happens with the market.
- Avoid withdrawing your money: Market downturns are one of the worst times to sell your investments, because you'll be selling your stocks when prices are at their lowest -- and locking in those losses. While it's not always easy, keeping your money in the market can better protect your savings.
- Keep a fully stocked emergency fund: When you have at least three to six months' worth of savings in an emergency fund, it will be easier to avoid tapping your investments (and selling your stocks during a downturn) if you face an unexpected expense.
- Choose your investments wisely: Not all stocks will survive a bear market, but the companies with solid underlying business fundamentals have the best chances. By filling your portfolio with these stocks, you're far more likely to make it through a downturn unscathed.
If you're just getting started investing or aren't sure where to put your money, you may opt for an S&P 500 ETF -- such as the iShares S&P 500 Core ETF (IVV 0.06%) or SPDR S&P 500 ETF Trust (SPY 0.07%). These funds aim to mirror the performance of the S&P 500 itself, which makes them one of the safer investments out there.
Investing in the stock market isn't easy, but it's especially challenging during periods of volatility.
The good news is that all bear markets are temporary, and it's only a matter of time before we see another bull market. By continuing to invest and keeping a long-term outlook, you can reap the rewards when the market inevitably rebounds.