Bear markets: How much could it hurt and for how long?
How much should you fear a bear market?
Written by Patryk Dyjecinski

IFA and Founder of Clara Wealth

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 Covid-19 health crisis will play itself out.

The words investors fear the most are ‘bear market’. Generally described as a drop of 20% or more in a stock market. Again, 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.

Using the UK stock market since 1900:

  • It has given a real return (inflation adjusted) of 5.5% annually. This is over a time period that includes the Depression, 2 world wars, the inflationary shock of the 1970’s, Black Monday, the dotcom bubble and the most recent Great Recession.
  • 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 1.9% for UK bonds over the same time period.

We can already say that stock markets are volatile but that investors who have stuck out bear markets have been rewarded for their perseverance with bull-market returns that can more than make up for the preceding losses. 

Let us have a more detailed look at the length and depth of bear markets over time (and bull markets as well).

The graph below does exactly that. Using 119 years of returns, we observe that:

  • There have been 103 total ‘bull market’ years
  • The average ‘bull’ period was 7.9 years
  • The longest ‘bull’ period was 29.7 years
  • There have been 16 total ‘bear market’ years
  • The average ‘bear’ period was 1.3 years
  • The longest ‘bear’ period was 2.8 years.
  • Bear markets are reasonably common. Since 1980, there have been 5 (with 7 in the US).

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, 2020) in a historical perspective. Using the FTSE All-share, it shows the worst drawdowns each year (not just calendar year returns) since 1986.
While the March sell-off was historically terrible, double-digit losses are a fairly regular event. Since 1986, we entered bear market territory (20% sell-off) in nearly 25% of all years. The average intra-year drop was 15.2% with positive full-year returns in 24 out of 34 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 —and, as argued in this post, relatively insignificant over the long haul. 

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. 

At Clara Wealth Management, we think 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. 

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