Bear Vs. Bull Markets
CERTIFIED FINANCIAL PLANNERS™ and financial planners answer questions about the stock market daily! It's part of our jobs that people are incredibly interested in because of the potential for their money to grow or shrink depending on market conditions! And heck, even past that - the stock market is just a fascinating beast to start out with! The way it fluctuates depends on business cycles, investor expectations, strategic moves, and the actions of industry head honchos.
When anything happens in the market or when the news cycle begins circulating a new term, I get questions coming from every direction. What does X mean? Is Y good? How is Z going to affect my financial plan? And lately, there's been no shortage of news about the economy, good, bad, and ugly.
Considering all of this, I've decided to put out another financial "back to the basics" article where we can go over some terms and principles! I've done these in the past and have received good feedback that people found them informative and helpful. Some of the financial basics that we've previously covered are stocks, mutual funds, and, most recently, economic cycles!
Bears VS. Bulls
If you listen to any type of financial news, you're sure to hear about today's topic! Bear markets and Bull Markets are constantly being talked about in economic news. When the economy is buzzing (good or bad), we hear about it even more. That's why today we're going to be talking about Bear Vs. Bull Markets, and what they mean.
The bear versus bull market dichotomy is a way to quickly and broadly generalize what's happening in the stock market. The terms are often used to speculate about how people are going about investing. These two animalistic terms often describe how confidence is fairing with the market.
While there's a bit more nuance involved, generally, one can picture a bull market as one where investors are excited about a market performing well. As a result, a bull market will have rising prices. On the other hand, a bear market is one where investors are a bit more skeptical. In a bear market, prices generally fall. Investors are much more interested in selling stock in favor of things like bonds, which promise a lower, but fixed return on investment.
Several examples of bull and bear markets have been in recent financial and economic history. For example, we experienced a bear market with the housing crash in 2008. However, just after that, we experienced the longest recorded bull market in United States history, which lasted from about March 2010 until the end of 2021 with a brief downtown in 2020 due to the coronavirus outbreak..
Which Market is Good and Which is Bad?
Is a bull or bear market better? If you've made it this far, you've probably got a good idea of the answer to this question. Bull markets have long periods of growth, which are typically accompanied by a surge in employment, GDP, and lower inflation. The opposite is true for a bear market, which usually experiences a drop in employment, higher inflation, and lower GDP. There's no question that the vast majority of us would likely prefer to be in a bull market. But, unfortunately, what goes up must come down. Even though they can be uncomfortable while we're experiencing them, a bear market serves as a check and balance of the economy.
Even though we'd likely always prefer to be in a bull market with rising prices on investments, a bear market isn't always totally awful news. In fact, the correct financial planner can help you use time in a bear market to gain some traction for the bull market that's likely right around the corner! A bear market means lower prices. The proper financial planner or financial advisor should be able to identify discounted investments that will pull through financial crises and eventually gain real steam!
Is the Market ALWAYS Bear of Bull?
Actually, no! The market isn't always in a bear or a bull state. A bear state experiences a 20% dip in prices over a prolonged time (months or years), and a bull market experiences a 20% rise in prices for an extended time. As you can imagine, there's a lot of space between those two scenarios.
This point can be challenging to find and even more difficult to believe because of how our news system works. When the market is good, we're always waiting for a crash, when the market is bad, we're always waiting for a rebound. And when the market is flat, we're constantly speculating whether it will go up or down. However, sometimes the market is flat (at least relatively flat). And while the market will go up or down daily, there isn't always a prolonged 20% drop or rise in prices to constitute a bear or bull market.
What are We in Now?
There's been a ton of talk about what kind of market we're currently in. In fact, that's really the pretext of this article. Signs point to the fact that we're currently in a bear market. I know hearing that is probably alarming to some of you. However, don't be too worried! Like I've said previously, bear markets aren't always totally bad news. They may be more difficult for the average consumer and investor. However, there's an opportunity to be had by working with the right people!
In a bear market, prices are relatively lower by definition than in a bull market. A financial planner can help you take advantage of those temporary lower prices and set you up for long-term success when the market (inevitably) heads the other direction.
Investing in Bear and Bull Markets
For most people, the idea of investing in a bear market is just kinda freaky. Nevertheless, it's o
ne of those eye-opening moments where many people realize that they probably should be working with someone instead of investing money themselves. In fact, most people's knee-jerk reaction to seeing a tumble in stock prices is to immediately contact whoever plans their investments or get online and sell everything they have. However, that's definitely not the right move. Surgical precision is key to making the most out of your investment plan, whether in bear or bull markets. Sometimes, that means taking temporary losses with stocks that will rebound and thrive in the long run. In other words, there's no reason to run to the hills and take massive losses just because the economy is in a temporary downturn.
The reality is that sometimes the economy and stock market DO have downturns. That's not unexpected, and if you're working with the right financial planner - it is incorporated into the overall plan. Financial planners like myself work with sound and time-proven financial strategies and tactics to create long-term growth. We diversify your portfolio and dollar-cost average and take tactical moves to prevent long-term loss.
If you're interested in working with someone who'll make the best out of any market condition to help you achieve your financial goals through long-term growth and investing, please call or email to schedule an appointment with me. We can create a financial plan that can weather and thrive bull and bear market cycles.
Until next time...this is Melissa Making Cents!
Melissa Anne Cox, CERTIFIED FINANCIAL PLANNER™, is a College Planning and Student Loan Advisor and Financial Coach in Dallas, Texas.