Definition

A bear market refers to a market condition where prices of securities (stocks, bonds, etc.) decline by 20% or more from their most recent peak. It typically signals a pessimistic outlook in the market, often triggered by a variety of factors such as economic downturns, rising interest rates, or declining investor confidence. Bear markets can last for weeks, months, or even years.

Analogy

Think of a bear swiping its paws downward. In the financial world, this represents a "bear market"—a time when the stock market is seeing a steady decline of 20% or more from its peak.

This picture sums it all:

Little-Known Fact

One of the most significant bear markets in history occurred during the Great Depression in 1929. The U.S. stock market plummeted by over 80% from its peak, making it one of the most devastating financial declines ever recorded.

Action Step if you are in a bear market:

• Stay Calm: Bear markets can feel intimidating, but it's important not to panic. History shows that markets eventually recover over time.

• Review Your Investments: Consider whether your portfolio is diversified and aligned with your long-term goals. Bear markets can be an opportunity to reassess your strategy.

• Consider Dollar-Cost Averaging: If you're a long-term investor, continue contributing to your investment account regularly. This approach helps you buy more shares when prices are low.

• Evaluate Risk Tolerance: A bear market may highlight the need to revisit your risk tolerance and adjust your portfolio to better reflect your comfort level during downturns.