To The Moon

Officially, we are in a bear market -- that's when stocks close 20% lower than their most recent highs. The question on every investor's mind: How long will this bear market last?

No one really knows the answer. Sure, pundits will try to predict (or guess), but those predictions will cover every outcome possible, from a quick, painless recovery to an extended downturn, the likes of which we've never seen.

A look backwards, though, tells us this bear market will likely fall between those two extremes.

What history says about bear markets

Since 1950, the S&P 500 has dropped more than 20% on 11 occasions. Below are some interesting data points on those pullbacks, according to a new report from Yardeni Research (PDF).

• The early 2000s bear market took 929 days to reach its lowest point. That's about two and a half years. This bear market occurred after the amazing rise of internet stocks in the late-1990s.
• The second-longest bear market started in 1973 and took 630 days to hit bottom. Contributing factors to the downturn were inflation, slow economic growth, and political turmoil surrounding U.S. President Nixon.
• The early 80's bear market lingered for 622 days before stocks started rising again. Inflation had a role here too. The Fed took an aggressive stance against rising prices by raising the federal funds rate to an eye-popping 20%. A recession and high unemployment followed.
• History's shortest bear market was the 2020 downturn, prompted by pandemic-related shutdowns and uncertainty. Stock prices fell for only 33 days before returning to growth.
• On average, not including this current cycle, bear markets last 388 days -- or just over one year.
• Excluding the longest and shortest bear markets of 2000 and 2020, respectively, the average bear market duration is almost exactly one year.
• Since 2000, there have been only three bear markets not including this one. Two of the three have lasted longer than the one-year average.

Investing in a bear market

Perhaps the most useful takeaway history provides is that bear markets have always given way to bull markets. If you can avoid selling out of your holdings, or even better, investing throughout the downturn, you'll be positioned for strong gains on the other side.

Admittedly, continuing to invest in a bear market is emotionally challenging, but you can make small changes to your investment approach to make it easier. For example:

• If you're light on cash savings, you might increase your emergency fund deposits temporarily. An extra liquidity cushion can help you avoid reaching into your portfolio when share prices are down.
• You might lean into dividend stocks more than you have in the past. Whether you reinvest your dividends or take them in cash, you'll appreciate the stability in the throes of a bear market.
• You might rethink your risk tolerance. Except for blips in 2018 and 2020, the market has been strong for years. In bull markets, it's tough to guage how much risk you can handle -- now's the time to ask that question. If you're invested more aggressively than you'd like, you can balance that risk incrementally by adding more conservative, blue-chip positions.

This bear market, too, shall pass

Bear markets are always uncomfortable for investors. Fortunately, as proven by history, they're also temporary. You and your wealth can survive this cycle -- often without changing your investment approach at all.

If you are compelled to make changes, do so incrementally. Avoid panic selling and major reallocations if you can. Patience will pay off, because there should be another bull market in our future -- and you want to be enjoying your share of those big recovery gains.