Bear markets again: How bad can it get?
It's time to revisit the topic of bear markets.
Written by Patryk Dyjecinski

IFA and Founder of Clara Wealth

It’s time to revisit the topic of bear markets. It is natural to feel worried about your investments in times of volatility. It can really shake an investor’s confidence. We don’t know what the markets will bring going forward, just as we don’t know how the war in Ukraine or the current inflation or cost of living crisis will play itself out. We are always climbing that wall of worry.

The words investors fear the most are ‘bear market’. Generally described as a drop of 20% or more in a stock market. We don’t know when they will come and how deep they will be. However, let’s take a look what history can suggest in terms of market behaviour, the length of bear markets and their depth.

The UK stock market since 1945:

  • Has given a real return (inflation adjusted) of 5.1% annually. This is over a time period that includes the Depression, 2 World Wars, the inflationary shocks of the 1970’s, Black Monday, the dotcom bubble, the Great Recession and the most recent Covid 19 lock-downs.
  • The worst one-year return was -55.6% in 1974. The best one-year return was +99.3% in 1975 (!).
  • This compares to an annualised return of 1.6% for UK bonds over the same time period.

Another interesting way to look stock market swings is on a yearly (and intra-yearly) basis.

The chart below shows just how wild the stock market can be and puts the current volatility (up to March 31st, 2022) in a historical perspective. Using the FTSE All-share, it shows the worst ‘drawdowns’ each year (not just calendar year returns) since 1986.
You can see that double-digit losses are a fairly regular event. Since 1986, we entered bear market territory (20% sell-off) in nearly 22% of all years. The average intra-year drop was 15.5% with positive full-year returns in 25 out of 36 years. 
Yet, despite this potentially stomach turning volatility, the index has managed to return over 2000% during this time period!
This is why we say it is “Time in the markets and not timing the market” that is the key to successful investing!

The key to getting through the turbulence is to understand that market swings are normal — they are not a bug but a feature!
It’s also helpful to consider the relationship between bear markets and recessions. In short, they’re far from synonymous. A bear market occurred in only three of the last 14 US recessions, and positive equity returns accompanied seven of those recessions. Conversely, it’s not uncommon to see lacklustre or even negative asset returns in years of solid economic performance. 

The best approach is a robust financial plan that accounts for a wide range of market conditions and is appropriate to your attitude to risk and capacity for loss. 

For further thoughts on market downturns and timing the markets, please also see:
Do Downturns Lead To Down Years?
The Difficulty of Timing the Market

Please contact Clara Wealth Management at with any questions or comments.

Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and you may get back less than you invest.