Most investors know bear markets are just a normal part of the stock market's cyclical ebb and flow. Most of those same investors also know, however, just how devastating a bear market can be. The average one pulls stocks down by more than 30% from peak to trough, and in some cases can last for years. Never even mind the amount of time that's often required just to reclaim levels reached before the bear market began.
Still, they're survivable, particularly if you can remember one thing about them when it's most difficult to do so. That one thing is, you want to be 100% invested when they end.
Then there's the second-most important thing. That is, you have no idea when they're going to end. You only know that -- like every one so far -- the next one will eventually end as well.
The average bear market
Numbers from mutual fund company Hartford indicate that the average of the 27 bear markets suffered since 1929 has dragged the S&P 500 (^GSPC -0.25%) 35.2% lower over the course of 289 calendar days. Based on data from CFRA, the brokerage firm Charles Schwab agrees with the scope of the typical loss but says the last 12 bear markets lasted an average of 14 months.
Either way, they can clearly be tough to ride out patiently.
But that's exactly what you should do. Just not for the reason you might think.
The numbers tell the tale
Yes, staying the course is critical. Nobody's consistently good at timing the market's ebbs and flows. Your best statistical bet, therefore, is not even trying to do so.
That's not quite the reason for sticking with your quality holdings even when they're being beaten down by a bear market, though, even knowing you can't know where the bottom is going to be made.
Image source: Getty Images.
Rather, the reason for remaining patient is the market's performance right at the very beginning of new bull markets. Hartford goes on to point out that over the past 20 years, more than one-third of the S&P 500's biggest single-day gains materialized during just the first two months of a new bull market. Separately but similarly, Hartford highlights the fact that the index's average gain during just the first month of a new bull market is 13.6%, and 25.3% during just its first three months. Indeed, in nearly three-fourths of the 27 bull markets since 1929, the S&P 500 performed better in the first half than it did during the second half.
In other words, a young bull market's early gains are too important to miss out on, even if it means suffering through a bear market.
Play the ultimate odds
Are there exceptions? Sure. The next bear market could be particularly devastating, or last an unusually long time. Or, you may be one of the few investors that spots the market's next peak and trough. Never say never.
As was noted, though, these are exceptions, and even if they weren't, your best long-term bet is still simply staying invested in stocks even when it's mentally tough. Every bear market so far has eventually ended and ultimately preceded new highs. The next one will, too.
