Bear Markets Explained: What Every Investor Needs to Know
Written by: Munif Ali | Sep 25, 2026
Blog Summary
- A bear market generally occurs when a broad market index falls 20% or more from a recent high.
- Understanding what a bear market is helps investors recognize the difference between a major market decline, a normal drop, and a market correction.
- The bear market vs bull market difference is simple: bear markets involve significant declines, while bull markets describe periods of generally rising prices.
- Bear market investing requires investors to understand their goals, time horizon, risk tolerance, diversification, and the investments they actually own.
- A market downturn can be uncomfortable and unpredictable, but understanding how markets work can help investors avoid making major decisions based purely on fear.
If you have ever opened your investment account and seen your stocks worth less than they were a few weeks or months ago, you already know markets don’t always go up.
Sometimes prices fall for a few days. Sometimes they fall for months. In more serious cases, the overall stock market can drop 20% or more from a recent high. That is when you may hear financial experts start using the term bear market.
What Is a Bear Market?
Let’s start with the basic definition.
A bear market is a period when a broad market index falls 20% or more from a recent high over at least a two-month period (SEC, n.d.).
A market index tracks a group of investments. For example, the S&P 500 tracks 500 large U.S. companies. Think of it as a large basket that shows how major U.S. stocks are performing overall.
If the S&P 500 reaches 5,000 points and later falls to 4,000, that’s a 20% decline. That doesn’t mean every company in the S&P 500 fell by exactly 20%. Some stocks could have fallen much more. Others could have fallen less. A few could even have increased. But that 20% figure describes the broader market.
A bear market is just a term describing a significant decline across a broad market, not a single bad day or one company’s falling stock price.
Why Do Bear Markets Happen?
No single reason drives every bear market.
Stock prices reflect what investors believe will happen in the future. If investors worry about the economy, company profits, interest rates, inflation, or other major risks, they may be less willing to pay high prices for stocks. That can lead to more sales.
For example, if investors believe companies will earn less money because consumers are spending less, they may start selling stocks because they expect weaker business results ahead.
Now imagine interest rates are also rising. Borrowing becomes more expensive for businesses and consumers. That can put additional pressure on spending, investment, and company profits. Then add concerns about inflation, geopolitical events, or a possible recession. These issues can also affect investor confidence.
Market surges and selloffs can be influenced by factors such as inflation concerns, economic conditions, political developments, trade policy, global events, and recession concerns (FINRA, 2024). That is why a market downturn can sometimes seem to come from several directions at once.
It’s also important to remember that the stock market is forward-looking. Prices can fall because investors expect problems ahead, even before those problems fully appear in economic data.
Bear Market vs Bull Market
If you are learning about markets for the first time, you will probably hear two words together: bear and bull.
A bear market describes a significant decline in a broad market index. A bull market describes a period when market prices are generally rising. Here is the simple version:
Bear Market
Bull Market
Prices are falling significantly
Prices are generally rising
Investor confidence may weaken
Investor confidence may increase
Selling pressure may increase
Buying interest may increase
Economic concerns may weigh on markets
Economic optimism may support markets
Investors may become more cautious
Investors may become more confident
If you are learning about markets for the first time, you will probably hear two words together: bear and bull.
A bear market describes a significant decline in a broad market index. A bull market describes a period when market prices are generally rising. Here is the simple version:
What Happens to Your Investments During a Bear Market?
If you own stocks during a bear market, your investments may decline in value.
Suppose you invest $10,000 and the value later falls by 25%. Your account would show about $7,500. That can feel like you have lost $2,500.
But there is an important distinction between a decline in an investment’s current value and actually selling it at a loss. If you sell while the investment is worth $7,500, you have locked in that $2,500 loss. But if you continue holding it, the value could fall further, stay around the same level, or recover later. There’s no guarantee that it will recover, especially if you own an individual company that runs into serious financial problems.
This is why you need to know what you own.
A diversified fund holding hundreds of companies is different from owning one struggling company. Your financial situation, investment goals, and time horizon also matter. A market downturn can expose weaknesses already present in a portfolio, especially when too much money is concentrated in one investment or asset type. Diversification can help reduce concentration risk by spreading investments across different assets and market segments (FINRA, n.d.).
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How Long Does a Bear Market Last?
Nobody knows. History can offer information, but it can’t provide a timetable for the next decline. U.S. stocks have experienced 26 bear markets over roughly the past 150 years. Historical data show that bear markets have varied significantly in both length and size. The median bear market in that dataset lasted about 19 months and involved a decline of about 33% (Fidelity Investments, 2025). It can only show us what happened before, not promise what will happen next.
Bear markets are also entirely different. Some are relatively short. Others last much longer.
For example, the bear market associated with the COVID-19 shock in 2020 was unusually short compared with many historical declines. Other bear markets have lasted years. So when someone says, “The market always recovers after X months,” be careful.
Bear Market vs Market Correction
A correction is generally a decline of at least 10% from a recent high, while a bear market is generally associated with a decline of 20% or more (Fidelity Investments, 2025). That means these two terms describe different levels of decline.
For example:
- A 5% drop is generally considered a normal market decline.
- A 10% drop may be considered a correction.
- A 20% or greater decline may be considered a bear market.
These numbers are useful guidelines, not predictions. However, a correction doesn’t automatically turn into a bear market. Likewise, entering a bear market doesn’t tell you how long the decline will continue. This is one reason investors should be careful about reacting to every percentage move they see on the news. A market can fall even without a prolonged downturn.
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What Is Bear Market Investing?
Bear market investing means continuing to make investment decisions when stock prices are falling, and market conditions are uncertain. It’s not about finding a secret way to make money while everyone else is losing, but about having a plan and making decisions based on your goals, not fear.
One challenge is knowing when the market has reached its bottom—when prices stop falling and begin to recover—but investors can only confirm it after the market has already moved past it. Trying to predict that exact point can lead to poor timing.
For example, an investor may sell because prices are falling and plan to buy back when things improve. The problem is that by the time the market feels safer, prices may have already recovered. The investor could end up selling low and buying back at a higher price. FINRA recommends that investors consider their financial goals, diversification, and risk tolerance rather than making impulsive decisions during volatile markets (FINRA, 2024).
So, should you invest during a bear market? There’s no definite answer that applies to everyone. It depends on your financial situation, goals, time frame, and the investments you are considering.
A long-term investor saving for retirement may have more time to wait through a market decline. Someone who will need the money for a major expense soon may have less room to take that risk. If you may need to sell investments during a downturn, falling prices could force you to take a loss to cover an important expense (FINRA, n.d.).
If you choose to invest during a bear market, consider these questions first:
- Do I understand what I am buying? A lower price doesn’t automatically mean an investment is a good value.
- Does it fit my financial goals? Your investment should have a purpose within your overall financial plan.
- How long can I leave the money invested? A longer time frame may give you more room to handle market declines.
- Is my portfolio diversified? Spreading money across different investments can help reduce the impact of one investment performing poorly.
- Can I handle more losses? Prices can continue falling after you invest, so be prepared for more volatility.
- Am I investing based on a plan or reacting to fear? Emotional decisions can lead to buying or selling at the wrong time.
Some investors also use regular contributions instead of trying to predict the perfect time to invest. Dollar-cost averaging means investing equal amounts at regular intervals, regardless of market conditions. This can reduce the pressure of trying to guess when prices have reached their lowest point, although it doesn’t guarantee profits or prevent losses (FINRA, 2024).
The goal of bear market investing isn’t to predict exactly when the market will recover. It is to understand what you own, know why you are investing, and make decisions that fit your financial plan.
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What Should Beginners Remember About Bear Markets?
I’ve seen enough ups and downs in business and investing to understand one thing: you can’t build wealth by reacting to every change in the market.
My approach to money has always been about looking beyond the next transaction. Whether I’m talking about sales, business, real estate, or investing, I focus on understanding the numbers, managing risk, and making decisions that can support long-term growth.
A bear market can make a good investment look bad simply because its value has fallen. It can also make people feel they need to act immediately. But a lower stock price doesn’t tell you the whole story. It can get uncomfortable. Your portfolio may lose value. Some companies will struggle. Others may recover. You won’t know which is which simply by looking at a red number on a screen.
So before you decide, go back to the basics: What are you investing for? When will you need the money? What do you actually own? Is your portfolio diversified? And can you handle more losses if the market continues to fall?
I share what I’ve learned about money and building wealth because understanding your finances gives you more control over your decisions. You may not control when the next bear market arrives, but you can control how prepared you are when it does. Keep learning with Munif Ali for practical insights on investing, business, and making smarter financial decisions.
Financial Industry Regulatory Authority. (2024, November 26). Investor tips for turbulent markets. FINRA. https://www.finra.org/investors/insights/tips-turbulent-market
Financial Industry Regulatory Authority. (n.d.). Asset allocation and diversification. FINRA. https://www.finra.org/investors/investing/investing-basics/asset-allocation-diversification
Financial Industry Regulatory Authority. (n.d.). Risk. FINRA. https://www.finra.org/investors/investing/investing-basics/risk
Fidelity Investments. (2025, April 15). Bear markets explained and definition. Fidelity. https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained
U.S. Securities and Exchange Commission. (n.d.). Bear market. Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/glossary/bear-market
U.S. Securities and Exchange Commission. (n.d.). Bull market. Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/glossary/bull-market
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