What history tells us about bear markets

25 March 2020 | Markets and Economy


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Commentary by Greg Davis, Vanguard chief investment officer

Perhaps the two words that investors fear most are “bear market”1. A drop of 20% or more in asset prices can shake the confidence of any investor, especially the longer it takes for a recovery to begin. In the last 20 years, we’ve experienced two bear markets in global stocks that have lasted more than a year with declines greater than 50%2.

Of course, bear markets are a fact of investing. It’s easy to lose sight of that coming out of a largely bullish decade, where we have seen sustained rise in share prices. It’s also easy to lose sight of another fact of investing, which is that bear markets end. As the chart shows, investors who have stuck out bear markets have been rewarded for their perseverance with bull-market returns that can more than make up for the preceding losses.

Bear markets are tough; so is missing out on bull markets3

A long-term view of the market can hide the ups and downs. A closer look shows that global bull market returns have more than made up for bear market losses.

Global stock prices, GBP

1 January 1980 to 31 December 2019

Note: Bear markets are measured as a 20% decline in securities prices from recent highs.

Source: Vanguard analysis based on the MSCI World Index from 1st January 1980, to 31st December 1987, and the MSCI AC World Index thereafter. Both indexes are denominated in GBP. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Sticking with an investment plan might seem challenging when investors have been caught off guard by the markets. But it’s never a bad idea to ensure that your client’s investment mix matches their risk tolerance and spending needs. Staying the course can be the right decision for reaching long-term financial goals if you’re coaching a client who feels a need to take action.

Here are a few simple reminders to help investors through the uncertainty.

Equity bear markets are common

Bear markets occur frequently. Since 1980, there have been seven bear markets in the United States. In the United Kingdom, there were five bear markets during the same period4.

The key to getting through the turbulence is to understand that market swings are normal —and, as shown in the illustration, relatively insignificant over the long haul.

It’s also helpful to consider the relationship between bear markets and recessions. In short, they’re far from synonymous. A bear market occurred in only three of the last 14 US recessions, and positive equity returns accompanied seven of those recessions5. Conversely, it’s not uncommon to see lacklustre or even negative asset returns in years of solid economic performance.

Tune out the noise

It’s important to recognise that shifting a portfolio in the hope of avoiding a loss or netting a gain rarely works and could hurt long-term performance.

From 2000 to 2019, the Standard & Poor’s 500 Index had a compound annual return of 6.1%. But if the ten best days during that period were excluded, the index would have had just a 2.4% compound annual return. Excluding the 25 best days, it would have had a –1.0% compound annual return6. Staying invested in the market is key, because after a downturn investors might not have to wait long to see one of those "good" market days. The best and worst days tend to cluster together —a major reason why successful market timing is largely a myth.

Maintain perspective and discipline in the face of adversity

Investing can provoke strong emotions. In the face of market turmoil, some investors may find themselves making impulsive decisions or, conversely, becoming paralysed, unable to implement an investment strategy or to rebalance a portfolio as needed. Discipline and perspective can help us remain committed to long-term investment programmes through periods of market uncertainty.

Investors should remain patient and consider staying invested in a broad mix of global stocks and high-quality bonds so that they are better positioned to buffer declines in the equity market. Investing across global markets can help protect against domestic shocks. Periodically rebalancing a portfolio can keep their asset allocation in line with their investment goals.

No one knows what the future holds.  But understanding the past can help us avoid impulsive decisions that may cause far more harm than good to a portfolio’s long-term value.

You can download a client friendly version of this article below:

 What history tells us about bear markets


1Bear markets defined as a 20% decline in securities prices from recent highs.

2Vanguard calculations, based on data from Thomson Reuters.

3Bull markets defined as a sustained rise in prices.

4Vanguard calculations, based on data from Thomson Reuters Datastream.

5Vanguard calculations, using the S&P 500 Total Return Index with Global Financial Data extension.

6Vanguard calculations, based on data from Thomson Reuters Datastream.



Investment risk information:

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.


Other important information:

This document is directed at professional investors and should not be distributed to, or relied upon by retail investors.

This article is designed for use by, and is directed only at persons resident in the UK

The material contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of units or shares of, and the receipt of distribution from any investment.

The opinions expressed in this presentation are those of individual speakers and may not be representative of Vanguard Asset Management, Limited.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2020 Vanguard Asset Management, Limited. All rights reserved.


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