Bear Market

The convention is precise: a bear market begins once a major index has fallen 20% from its most recent peak. A drop of 10% is a correction, and the label changes at 20% regardless of what caused it or how long it lasts.

They are a normal feature of investing rather than an aberration. US stocks have entered a bear market roughly every six or seven years on average, and every single one so far has eventually been followed by a new high — which is the entire argument for staying invested through one.

Recovery times vary enormously, and that is the part averages hide. Some bear markets have been erased within months; others took years to regain their previous level. This is why money you need within a few years does not belong in stocks: a bear market does not care about your timeline.

The real damage is usually self-inflicted. Selling after a 25% fall converts a paper loss into a permanent one and leaves you deciding when to return, a decision almost nobody gets right. Continuing to buy on schedule means your regular contributions are purchasing more shares at lower prices.

A bear market is also the moment a target allocation earns its keep. Rebalancing forces you to buy the asset that has fallen, and in a taxable account the decline creates losses that can be harvested against future gains.