Dow Jones Bear Market: History Tells Us 1 Important Thing

The Dow Jones Industrial Average officially entered a bear market recently, falling just over 20% since early January. It is the first time it has fallen into bearish territory since the start of 2020, raising fears that a recession is looming on the horizon.

If you’re feeling nervous about investing right now, you’re not alone. The value of the portfolios of millions of investors is plummeting and it can be scary to watch your savings dwindle.

However, there is a silver lining. While no one knows exactly how the market will behave over the next few months, history tells us one important thing about bear markets: they constantly lead to bull markets. And there is a strategy that can help you make money no matter what happens in the short term.

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Will the market recover from this slowdown?

One of the most daunting aspects of a bear market is that no one – even the experts – can predict exactly how long it will last or how severe it will be. But the good news is that it will eventually give way to a bull market.

Historically, the market has had its fair share of bear markets. Indeed, since 1928, the S&P500 has fallen by at least 20% on 21 occasions, not counting the current downturn. On average, it’s a bear market every 4.5 years.

While that’s not exactly reassuring, the silver lining is that the market has recovered from each of these downturns. Although there is no guarantee to invest, it is extremely likely that the market will rebound from this crisis as well.

How to make money on the stock market, even in times of crisis

It is not always easy to invest when the market is volatile. But historically, there is an almost guaranteed way to make money in the stock market: hold onto your investments for the long term.

In the short term, your portfolio could lose value. But lose assess is not the same as losing silver. You will lose money if you sell your investments after stock prices fall, because you will be selling your shares for less than what you paid.

But if you just hold onto your investments until the market inevitably rebounds, your portfolio should rebound and you won’t have lost anything.

Not only can this strategy help you avoid losing money, but it can also improve your chances of earning more over time. Again, the market has seen severe downturns in the past. Even so, however, it has achieved positive average returns over time.

^ SPX Chart

^ SPX data by YCharts.

If you had invested in a tracking S&P 500 index in 2000, for example, you would have achieved returns of over 152% today – despite the bursting of the dot-com bubble, the Great Recession, the crash at the start of the The COVID-19 pandemic and the current bear market.

Secure your investments

Time is your most valuable resource when it comes to protecting your investments. Trying to time the market or sell your stocks during a downturn can be risky, and there’s a chance you’ll lose more than you gain. But if you simply hold your investments for at least a few years (or ideally, decades), you’re much more likely to see positive average returns.

It’s not an easy time to invest right now, but investors shouldn’t be afraid of the stock market. Patience pays off, and by staying calm and keeping your money in the market, you can earn more than you think over time.

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