What should you know?
Every few years we experience a deeper temporary decline in equity markets. These are known as ‘Bear’ markets, which are defined as when a market index falls by 20% or more from its most recent high.
The chart below plots all the ‘Bear’ markets and subsequent recoveries since the end of the Second World War:
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- Since the end of the Second World War, there have been 13 ‘Bear’ markets in the S&P 500.
- On average, ‘Bear’ markets lasted for 11.4 months before hitting the bottom.
- From there, on average, it took a further 2 years and 3 months for valuations to recover to where they were prior to the decline.
- Despite these ‘Bear’ markets, with dividends reinvested, the index has returned 10.8% a year over that time.
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Why should you care?
Market downturns are always uncomfortable for investors. Fortunately, history proves that they are temporary, and this current downturn is no different. Market volatility is the price you pay for the excellent long-term returns that equities will give you.
It is important to continue to invest throughout these declines. We are in the middle of a prolonged ‘sale’ on shares of the best companies in the world and these ‘sales’ are a great opportunity for long-term investors.
Your patience and continued investment will be rewarded in the future when markets emerge from the current downturn and resume their long-term march upwards.
