If you’ve read any amount of financial literature, you’ll no doubt come across the terms “bear” markets and “bull” markets. They are terms often shared on the evening news. Let’s share a definition (via Investopedia) before we go too much further.
- Bear Market: a market in which prices are falling, encouraging selling. A market is considered a bear market if multiple market indexes (S&P 500, Dow Jones Industrial Average, etc.) drop 20% or more over at least a 2 month period.
- Bull Market: a market in which share prices are rising, encouraging buying. Key words to listen for when you know you’re in a bull market: investor optimism, investor confidence, and strong earnings results.
Basically, bull means things are going up, bear means things are going down. Easy peasy, right?
There’s this thing called market corrections…
In recent years, the overall stock market has become quite volatile – for a variety of reasons perhaps not as pertinent today as just knowing that the market is more volatile that it was, say, 25 years ago.
One aspect of this phenomenon that you’ll read about often is called a ‘market correction.’ This is, by definition, a market drop of more than 10%. Typically they are closer to 15%.
As you can imagine, a drop of 15% could start to feel a lot like a bear market – another 5% dip and there’s your bear market. Or, things could ease off in the morning, and no bear market. This is why much speculation and analyst attention goes to issuing opinions on this topic, to help investors make the best decision on
Bear vs bull markets only matter to you if…
Remember, bear markets are down, bull markets are up – over a 2 month period. A quick up or down is a correction. Got that?
Now, the big question I want to answer is, should you care if it is a bear market vs a bull market? Should you not put money into your 401k or retirement fund if markets are down? Should you put more in a bull market?
Our advice is, regardless to the market situation, stick to your investment plan for the long haul. The only except is that if you are nearing retirement, you should be starting to slowly move you investments over towards less volatile areas. But if you have several decades before you are retiring, there’s no need to drastically change your investing approach unless your own circumstances or financial goals have changed.
Here is some further reading if you want to learn more about bear/bull markets: