Bulls vs. Bears

September 4, 2018 Categories: Portfolio Corner
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Bull and bear market

Some investors may be concerned that equity markets have become overpriced, and are on the brink of a pullback. Perhaps they are passing time on the sidelines, holding onto cash and the belief they have lost out on the longest bull market in the last 60-plus years. Or possibly they are contemplating that it’s time to sell stocks and reposition to cash out of fear of the next bear market.

However, looking back over the last 90-plus years, it is unmistakable that bull markets have, on average, lasted longer than bear markets. In addition, bull markets have historically more than made up for any losses in bear markets. While there are a number of leading indicators when trying to foretell when the next bear market will be (flattening of the yield curve, inflated price-to-earnings ratios, etc.), it is nonetheless impossible to precisely predict when the bear market will begin. Given the fact that predicting the next market downturn is next to impossible, we believe the best approach for long-term investors is to stay invested, and dialed in on their long-term objectives.


Over the past 92 years, as shown in the chart above, we observe 33 bull and bear market cycles, with the average bear market seeing a 31% decline, in contrast to the average bull market increasing by 175%! What’s more, the average bear market has been 15 months in duration while the average bull market has sustained for almost 51 months.

Even after periods of a more considerable downturn, most notably in the 1930s, we see that the market rebounded substantially in the years that followed. So, although exiting the market might feel like the right thing to do when volatility increases and a bear market ensues, history demonstrates this approach typically has not paid off over the long run.

Five hypothetical scenarios reviewed

In the chart below, we lay out five distinct hypothetical accounts, with $12k invested in each account annually over a span of the last 10 years. Short of possessing a magic crystal ball, being invested—and staying invested—would yield the best outcome for the long-term.

  • The first scenario, or crystal ball scenario, assumes perfect market timing and invests at each annual market low point. Of course, this is optimal, but pretty much impossible; however, using historical data to calculate this scenario over the past 10 years, an investor would have made $278k with impeccable market timing.
  • The second scenario assumes the annual investment is made every year on January 1. It allows for the longest amount of time possible, and would yield the second-best result or next-best strategy of $255k.
  • The third strategy, called dollar cost averaging, is based off investing once per month. This strategy is very practical for most investors in the market for several reasons, but the principle reason relates to pay schedules and having cash available to invest. Investing on a monthly basis allows investors to get their money in the market and ride out some of the month-to-month volatility by not putting all their money in the market before a big drop. The difference between strategies two and three is relatively modest, and while the second strategy has been better in nearly all market environments, the third strategy is likely more realistic and easier to implement for most investors because not everyone has large sums of cash to invest at the start of the year.
  • The last two scenarios show the negative impact of investing with the absolute worst timing for the last ten years, or of just sitting on the sidelines in cash. While both outcomes would have fallen short of the first three, even the perfectly wrong timing scenario would have yielded a gain of nearly $100k. Unsurprisingly, the holding cash scenario would have resulted in negligible gain.

The bottom line

Time is on your side. By setting long-term objectives and possessing the discipline to stay invested through the ups and downs of the market, we believe a diversified portfolio has the best probability of meeting its goals.


Hypothetical returns are illustrative and represent past index performance, are not a guarantee of future performance, and are not indicative of any specific investment.

Dollar Cost Averaging does not assure a profit or prevent a loss in declining markets, and you should consider your ability to continue investing during low price levels.

Diversification does not assure a profit and does not protect against loss in declining markets.

The S&P 500 Index is an index, with dividends reinvested, of 500 issues representative of leading companies in the U.S. large cap securities market (representative sample of leading companies in leading industries).

Standard & Poor’s Corporation is the owner of the trademarks, service marks, and copyrights related to its indexes. Indexes are unmanaged and cannot be invested in directly.

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

This material is not an offer, solicitation or recommendation to purchase any security.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

The Russell logo is a trademark and service mark of Russell Investments.

Copyright © Russell Investments Group, LLC 2018. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.

Russell Investments Financial Services, LLC, member FINRA (www.finra.org), part of Russell Investments.

RIFIS: 20374

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