Bear markets test investor patience

No one likes to lose money, and a long bear market can push investors to react—which often leads to costly mistakes. [Mitch on the Markets] How Bear Markets Eat Away at Investor Patience Investors rang in the 2021-2022 New Year on a high note, with the S&P 500 index almost reaching 4,800. With an assist from soaring home prices, U.S. household net worth soared to levels never seen before. Then the bear market arrived in 2022, and almost a year and a half later, the stock market is still about 15% away from eclipsing its all-time high set in December 2021. The thought of reaching a new peak may feel like a far-off possibility, and many investors may see this market weakness as lasting an unusually long time.1 But history reminds us that it’s very normal. --------------------------------------------------------------- [Market Forecasts for the Months Ahead]( What does the current market mean for your investments? In our just-released stock market report, we take inventory of the market’s performance so far in 2023. We also look at: - Zacks forecasts for the months ahead - Current asset allocation guidelines - Zacks Rank industry tables - Our latest commentary and outlook on equity markets - And more… If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [Download Our Just-Released April 2023 Stock Market Outlook Report 2]( --------------------------------------------------------------- Here’s a look at the last five major bear markets (including 2022), and the number of days it took for the stock market to go from one peak to the next: Market Peak Market Trough Next Market Peak Total # of Days November 28, 1980 August 12, 1982 November 3, 1982 705 March 24, 2000 October 9, 2002 May 30, 2007 2,623 October 9, 2007 March 9, 2009 March 28, 2013 1,997 February 19, 2020 March 23, 2020 August 18, 2020 181 January 3, 2022 ??? ??? ??? Source: A Wealth of Common Sense 3 The pandemic-driven bear market of 2020 marked the fastest round trip (181 days) to a new peak since 1950, but I think we can classify it as an outlier given the circumstances. Beyond that bear market, the shortest amount of time it took for the market to get back to a previous peak happened in 1950, when it took 436 days. Consider that since 1950, the average number of days it took the stock market to return to a peak is 1,166 – or over three years. That’s a long time. During these long stretches of time, investors are prone to lose patience, which can lead to a number of mistakes that compromise returns over time. The economist Richard Thaler – who received the Nobel Memorial Prize in Economic Sciences in 2017 – refers to one of the effects on investors as “myopic loss aversion.” Loss aversion says that investors dislike losses about twice as much as they appreciate gains, while the myopia of checking our investments too often only serves to amplify the impact of loss aversion. Given that it usually takes years for the stock market to return to a previous peak following a bear market, investors are forced to spend a lot of time trying to contain – and hopefully avoid – myopic loss aversion. It can be easy to lose patience during this time, which sometimes results in investors deciding to change their asset allocation, or perhaps even making sizable bets on risky stocks or asset classes – in hopes of speeding up the return to previous peaks. These decisions are almost always mistakes made at just the wrong time. Bottom Line for Investors Since 1950, bear markets have lasted an average of 381 days. At the time of publication of this column, it has been 460 days since the stock market peak on January 3, 2022. I mentioned previously that the average number of days it has taken for the stock market to go from ‘peak to peak’ is 1,166. But it’s important for readers to keep this in mind: the market spends the majority of the ‘peak to peak’ time climbing back up to historic levels. In other words, remember that the bear market doesn’t last an average of 1,166 days, the round trip does. And therein lies the real harm of myopic loss aversion: as investors grow frustrated at the long time it takes the market to get back to a peak, it sometimes results in shifting strategies in the early stages of a new bull market – which is precisely the wrong time to do so. I recommend that investors protect their investments from any market risks. Our [Just-Released April 2023 Stock Market Outlook Report]( can help you do just that. This report takes inventory of the market’s performance so far in 2023 – what needs to happen for the market to reach new highs. Get deeper insight into the following: - Zacks forecasts for the months ahead - Current asset allocation guidelines - Zacks Rank industry tables - Our latest commentary and outlook on equity markets - And more… If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [Download our Just-Released April 2023 Stock Market Outlook 4]( About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. Don't put off planning your secure retirement! Talk to a Zacks Wealth Advisor today. 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