Bull vs. Bear Market: How They Compare - MagnifyMoney

Bull vs. Bear Market: How They Compare

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.
How MagnifyMoney Gets Paid ?
Advertiser Disclosure

As you travel the wilds of your investing experience, you’ll encounter two distinct beasts: bulls and bears. One’s welcome — but the other one, not so much. So how do you invest so your portfolio can hold its own against both beasts?

For long-term investors, your best strategy will be to stay the course. However, we’ll compare bull vs. bear markets, so you can be comfortable with how both work. From there, we’ll arm you with tips to help you avoid common mistakes in both market extremes.

Bull vs. bear market differences

Bull and bear markets are opposites — one’s an extended market rally with soaring prices, while the other’s an extended market slump.

Here’s how their features differ:

Stock market performance over2+ consecutive monthsInvestor sentimentAverage duration (since 1966)Average return (since 1966)
Bear markets20% decrease in the stock marketPessimistic446 days-38.4%
Bull markets20% increase in the stock marketOptimistic2,069 days209.2%

When you hear the term “bull market,” think of stock prices charging ahead. A wide range of asset classes will be on the rise, buoyed by strong economic conditions. Major stock market indexes like the Dow and S&P 500 will show record highs, encouraging new investors to start investing. During bull markets interest rates are typically low. Without the allure of a good return on your savings, you and other consumers will likely spend more.

When you hear the term “bear market,” however, think an angry bear trying to defend his food stash. In bear markets, stock prices fall. You’ll likely see your investment “stash” lose value. Skittish investors might want to pull their money out of the market (we don’t recommend that). During bear markets, the Federal Reserve typically raises interest rates to encourage people to keep their money in the bank and out of the economy to help cool inflation. The Great Depression is perhaps the most famous bear market in history.

Bear vs. bull market similarities

While entirely different creatures, bears and bulls in the market share some similarities, too.

Both bear and bull markets…

  • Are vastly unpredictable and, therefore, unavoidable.
  • Have clear beginnings and ends, but muddy middles.
  • Can stir-up emotions, leading to costly mistakes (more on this soon).

Bear vs. bull markets: How long do they last?

So, how long might each of these beasts rule the stock market? Here’s the bottom line: Neither reigns indefinitely.

Average durationLongestShortest
Bear markets1.3 years31 months (2000-02)33 days (February to March 2020)
Bull markets6.6 years11 years (2009-early 2020)21 months (March 2020 to January 2022)

Is the market always a bear or bull?

Although the markets can swing between incredible highs and deep lows, we’re not always in a bear or a bull market. Sometimes, the market is just the market. Unfortunately, there’s no “neutral animal” like a zebra or penguin to capture this middle ground.

How to invest in a bear market vs. bull market

So, should you take the bull by the horns, or the bear by the tooth? The key to thriving or enduring during any beast’s reign comes down to portfolio diversification and your time horizon.

The importance of a diversified portfolio

Consider your car for a minute. If it’s well-maintained, you can drive through wide-ranging weather conditions and across varying distances (or wildlife preserves), confident that your car is up to the task. The same holds for a well-maintained investment portfolio designed to bring your growing wealth through a wide range of market conditions with confidence.

Diversification is “basic maintenance” for your investment portfolio. Instead of putting all your money in a single stock, you’d invest in stocks of multiple companies in multiple, unrelated sectors.

Now, in bull markets, all those stocks will likely ride the upward price wave. But in bear markets, some stocks will decline, and others will find growth. Diversification helps you find growth in down markets, which minimizes the potential hit to your portfolio. If we go back to cars, diversification ensures you have a well-functioning investment machine filled with complementary parts instead of a giant box of wheels.

Consider talking to a financial advisor if you need help building a diversified portfolio. A short meeting could start a long-term relationship — even if you’re a do-it-yourself investor — and give you a portfolio built to withstand all the market’s beasts.

How to invest in a bear market vs. bull market by time horizon

Since saving for retirement is likely the longest-term investment you’ll ever make, let’s look at how bull and bear markets will impact that investment. But before we start, there’s one piece of advice that holds in all markets: Don’t let your emotions make your investment decisions.

Emotions can lead you to sell when stocks are on the decline — just when you should be buying more — while also leading you to buy high just to get in on the latest hot stock that’s likely already peaked. Both are avoidable mistakes if you use your time horizon — how close you are to retirement — as the leading reason to adjust anything about your investment strategy.
<h4class=”line”>If you’re far from retirement

It might be disheartening to look at your retirement savings take a hit, but remember: Bears come and go, just like the bulls. If you’re decades away from retirement, our top tip in all market conditions is to stay invested and don’t panic.

In a bear market…

  • Keep saving. During bear markets, you get to invest at a discount. This is your chance to buy low and sell high later.

In a bull market…

  • Keep saving. The investments you make during bear markets will help lower the cost per share of your investments in bull markets. You’re on the right track.

If you’re nearing retirement

As retirement grows near, it could be shocking to see a bear market take a bite out of your wealth. You might need to rethink your asset mix to protect your wealth and still enjoy some growth.

In a bear market…

  • Assess your risk tolerance. If bear market losses leave you queasy, consider a more conservative asset allocation — even better if you can wait to make the adjustment until the market rebounds.

In a bull market…

  • Think twice. While big gains bring big smiles, remember that the market might soon swing the other way. Bull markets are ideal times to capture gains and begin preserving wealth.

If you’re retired

When you’ve done the hard work of saving enough to enjoy the retirement of your dreams, any market dip — however small — can threaten your lifestyle. Think about making small moves that can pay off (and pay you) in the coming years.

In a bear market…

  • Avoid drastic moves. If you need to make portfolio changes during a market dip, try to hold out for market recovery. Then, you can sell higher-risk assets like stocks and reinvest in lower-risk assets like certificates of deposit (CDs) or bonds.

In a bull market…

  • Cash-in. Capture your gains while stock prices are on the rise. You can then reallocate your earnings into income-generating assets like tax-free municipal bonds.

The bottom line

While entirely different animals, both bear and bull markets will play a role in your investments. The key to better investing success through both is a well-diversified portfolio designed to square off against bears and bulls alike.

Frequently asked questions

A bull market is a 20% or greater stock market rise over two or more consecutive months.

To remember the difference between bear and bull markets, use the animals as reference. Bears raid your picnic basket, while bulls charge forward.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.

Find a Financial Advisor near you

We will use this information to find the right advisor near you