A bear market happens when investors turn pessimistic about companies’ growth potential and profit outlook, and stock prices generally decline for an extended period of time, before hitting bottom.
A bull market happens when investors are optimistic about companies’ growth potential and profit outlook, and stock prices generally rise for an extended period of time until hitting a peak.
Every bear market is different, and it’s hard to predict when the next one will come. Bear markets can last for months – even years – and see stock prices fall by 20% or more.
One of the more memorable recent major bear markets followed the 2008 Financial Crisis. It lasted 17 months and saw the S&P 500 drop by 56%. That bear was triggered by risky borrowing which lead to the collapse or near- collapse of some of the most established financial institutions in the U.S.
There is no one correct way to handle a bear market – every investor’s situation is different, depending on their risk tolerance and time horizon. Some tips for investors include: keep focused on the long-term, keep a diversified portfolio, stay calm and avoid emotional decisions, get investment advice from a qualified financial advisor, and revisit your investment plan and risk tolerance regularly.
For more tips and information about how to handle a bear market, visit GetSmarterAboutMoney.ca.