22 September 2023

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From the bear to the bull market

Luigi Campopiano

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In the last phase of the bear market in 2020, the S&P 500 index took 148 days to return to its previous highs. But if you consider the 14 bear markets that have occurred since the World War II, on average these financial swings have lasted longer than 14 months and it took two years to smooth out the losses suffered. Investors anxiously wonder how much will be lost when the bear market ends.

Reviewing the historical data, the answer may be quite a bit. 

Since the road to returning to a bull market seems to be long, it is useful to prepare properly and get the right equipment, just like when facing a long journey. Here are some considerations from Janus Henderson Investors to help investors overcome this market downturn and arrive safely at your financial destination.

• Plan your itinerary. When you set off, it's crucial to know where you're starting from and where you intend to arrive. Every successful journey begins with a map and the itinerary traced on it. From a financial point of view, the map could include goals such as retirement or funding college for children, and the itinerary could be the asset allocation that you intend to follow to achieve these objectives. Just because you encounter a financial obstacle does not mean that one's goals or goal should change. Of course, the roadmap can be changed, but the objective must be to reach the same destination that you had set at the beginning of the journey.
• Take breaks. The longer a journey, the greater the need to stop from time to time to take a break, refresh yourself and be sure you are still on the right track. Also, during the financial journey through this bearish phase, you may need to take breaks, to check the asset allocation and make sure you are still on the right track to achieve your goals.
• Put on your protection. You must always carry sunscreen with you because it is easy to get a sunburn. And once you get a sunburn, the discomfort can stay for a while. Avoiding exposure to the bear market can be annoying. We need to put on our protection through different defensive strategies, including systematic rebalancing or making a broader change in asset allocation, perhaps by increasing exposure to bonds.
• Have a snack. On every trip it is essential to have a snack. It’s even better if snacks come in regular intervals. Your hunger is taken care of, and that can prevent you from getting nervous or jumpy, thus keeping your concentration on the task at hand. In order not to lose your way during a bear market, it may be useful to have some snacks, that is, continue to invest in the market gradually. This can help investors manage their loss aversion and other emotions they may feel along the entire path until the end of the bearish phase.
• Take the right exit. It is not possible to know when the current bear market will end. The way out may be a few miles away, or you may not arrive for some time. Dealing with this uncertainty is not easy, but it is necessary to continue one's investment journey by following the map used to achieve your future goals. Long-term financial goals can only be achieved consistently, planning and staying on the course, despite the inevitable detours.