If market declines make you nervous, then you’re not alone. Especially now, when COVID-19 and its economic impact are fuelling feelings of uncertainty around the world.
But while bear markets can be extraordinarily difficult, they also can be moments of great opportunity. Investors who find the courage and conviction to stick to their long-term plans are often rewarded as markets bounce back.
To help put recent markets into perspective, we outline three facts about market recoveries and three mistakes that investors should avoid.
3 facts about market recoveries
Fact #1: Recoveries have been much longer and stronger than downturns
The good news is bear markets have been relatively short compared to recoveries. They can feel like they last forever when we’re in them, but in reality they are much less impactful compared to the long-term power of bull markets.
Although every market decline is unique, in the U.S., the average bear market since 1950 has lasted 14 months. The average bull market has been more than five times longer.
The difference in returns has been just as dramatic. Even though the average bull has averaged a 279% gain, recoveries are rarely a smooth ride. Investors must often withstand scary headlines, significant market volatility and additional equity declines along the way. But investors who remain focused on the long term are often better equipped to look past the noise and stick to their plan.
Fact #2: After large declines, markets have recovered quickly