Stock returns are volatile, but nearly a century of bull and bear markets shows that the good times have outshined the bad times. The chart below, from Dimensional Fund Advisors, shows S&P 500 Index total returns from 1926 though 2020, broken into bear markets (a fall of at least 20% from previous peak) and bull markets (gains of at least 20% from a previous trough).
How were the bear and bull markets similar? There were about the same number of each, with 17 bear markets and 18 bull markets.
How did bear and bull markets differ? Bull markets last much, much longer. Bull markets averaged 54 months in length, and advances ranged from 21% to 936%. Bear markets averaged 10 months, and declines ranged from -21% to -80%.
Put another way, as you look at the chart, there is a lot more blue than gold. When the bear and bull markets are viewed together, it's clear that staying the course when owning stocks has benefited investors.
S&P 500 Index Total Returns, January 1926 - December 2020
Source: Dimensional Fund Advisors
Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
In USD. Chart end date is December 31, 2020, the last trough to peak return of 70% represents the return through December 2020. Due to availability of data, monthly returns are used January 1926 through December 1989; daily returns are used January 1990 through present. Periods in which cumulative return from peak is –20% or lower and a recovery of 20% from trough has not yet occurred are considered Bear markets. Bull markets are subsequent rises following the bear market trough through the next recovery of at least 20%. The chart shows bear markets and bull markets, the number of months they lasted and the associated cumulative performance for each market period. Results for different time periods could differ from the results shown. A logarithmic scale is a nonlinear scale in which the numbers shown are a set distance along the axis and the increments are a power, or logarithm, of a base number. This allows data over a wide range of values to be displayed in a condensed way.
Source: S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission
David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.