The beauty of bear markets things are not as bad as they seem!

Financial markets look to be on the bumpy road to recovery, thanks to the US Federal Reserve's proactive measures and sustained economic fundamentals. The Fed has implemented the fastest easing process the U.S. market has ever seen, cut- ting rates five times in the last five months, for a total of 250 basis points. And further cuts may be ahead. Aggressive measures to jump start the economy combined with good productivity and controlled inflation should fuel a strong rebound in equity markets later this year.

Although the markets are looking up, don't lose the lesson this last bear has taught us. Down markets give us the opportunity to become more knowledgeable, experienced investors. Here are a few pointers to remember the next time a bear comes calling...

 

 

Average Decline

History shows us that the average market downturn lasts just over a year (the tech- nical definition of a bear market is a decline of 20% or more). On average, the broader market declines about 28% insuch a downturn (see table). Note that specific indices, such as the Nasdaq, will not follow this trend because of its sectorconcentration. (The Nasdaq is a barometer for two sectors: technology and telecommunications.)

 

Expect Bear Markets

 

Seasoned investors know that bear markets are nothing new. In fact, the U.S. market has experienced 12 bear markets since the Sec- ond World War. That's an average of a bear market once every four and a half years. (The only exception: the 1990s, when the U.S. market experienced its longest running bull market from October 1990 to July 1998.) Global equity markets illustrate the same point: bear markets are to be expected. The MSCI, a broad-based global market index, showed nine post-war bear markets, averaging a slowdown every six years.

 

Gains Outweigh Losses

 

The good news is that bull market gains far outweigh bear market losses. As mentioned above, the average decline (after the Second World War) for a broad-based U.S. index, such as the S&P 500, is approximately 30%. The average gain after its recovery, however, is approximately 137%. Now that's reason enough to stay invested!

use this knowledge the next time volatility strikes and you'll be on your way to becoming a successful investor. Give me a call today to review your portfolio and to see where the opportunities are ahead.

 

Source: komberg