Protect Your Portfolio: 2025 Bear Market Guide

The S&P 500 bottomed out around -25% in October of 2022. Since then, the U.S. has enjoyed a relative recovery and numerous all-time highs. That is, until the fallout from the April 2025 tariffs and subsequent trade wars triggered “… the worst week for the stock market since 2020, when the Covid-19 pandemic led to global shutdowns and other disruption.” Suddenly, the term “bear market” is back in the news.

What Is A Bear Market?

A bear market typically describes a scenario when stocks, on average, drop at least 20% from their previous high. For context, any drop greater than 10% but less than 20% is often referred to as a market correction. Much as losing money typically feels twice as bad as making money feels good, a bear market can generate fear and anxiety among investors watching their retirement savings lose value. Despite the understandable angst, it’s healthy to remember that the stock market isn’t an escalator going straight up. It cuts like a mountain road—curvy and winding with ups and downs. Though it may cause motion sickness, it generally trends higher over long periods.

Reviewing bear market history can help investors prepare for short-term downturns or prolonged pullbacks that can be particularly tough if accompanied by a recession.

Bull Length VS. Bear Length

Bear markets tend to be short-lived, with the average length since 1929 lasting 9.6 months, according to Ned Davis Research. Bull markets, on the other hand, tend to persist far longer, with the average being 2.7 years. More recently, three of the last 10 bull markets have surpassed 2,000 days, or roughly 5.5 years.

Bear markets have been less frequent since World War II. Between 1928 and 1945, there were 12, or roughly one every 1.5 years, but there have only been 15 since, about one every 5.1 years. Calculating these numbers puts the long-term average frequency between bear markets at approximately 3.5 years.

The average bear market since 1950 has lasted about 11 months, but six of the last eight bear markets ended within just six months. So, while every moment of decline may feel like an eternity, history tells us that markets often recover faster than expected, depending on one significant variable: whether or not the economy enters a recession.

On average, bear markets without recessions recover in approximately seven months. This number rises to roughly 2.5 years with a recession.

How Much Do Stocks Typically Drop In A Bear Market?

Stocks lose an average of 35% in a bear market, and the experience can be harrowing for investors. Historically, some bear markets have been particularly brutal.

• The Dot-Com Bust (2000-2002): Excessive speculation in technology stocks led to a nearly 50% decline in the S&P 500, erasing significant wealth and shaking investor confidence.
• The Great Recession (2007-2009): Triggered by the housing market collapse and financial crisis, the S&P 500 fell 57% from its October 2007 peak before bottoming in March 2009.

Although bear markets tend to accompany economic slowdowns, they don’t necessarily indicate an economic recession. There have been 27 bear markets since 1928, but only 15 recessions.

Bear markets can be agonizing, but overall, markets are positive more often than not. Over the past 94 years, the market has only experienced a total of 21.4 years in bear market conditions. Put another way, stocks have been on the rise 78% of the time. Moreover, they gain an average of 111% in a bull market. So, while the losses can be distressing, the overall upward trend over time tends to reward those who push through. Therefore, it is essential to maintain a long-term perspective and recognize that the recoveries tend to be much faster than the declines.

The “30-for-30” Rule Of Thumb

Over the past two decades, nearly 42% of the S&P 500’s strongest days occurred during a bear market. Approximately 36% of those best days took place in the first two months of a bull market, before it was clear that it was underway.

Bear markets grab all the headlines, but recoveries happen quietly. And they can happen fast. On average, 30% of the stock market’s recovery happens within 30 days of hitting rock bottom. Those who liquidate to escape the losses risk missing that window, which can cost them a huge chunk of the upside. In other words, because it can be nearly impossible to time a recovery, often the most effective way to weather a pullback or downturn is to stay invested.

The Dry Powder Principle: Staying Prepared In Bear Markets

Having a reserve of dry powder to cover expenses when equity markets decline can sometimes help folks persevere through a bear market. In investing terms, dry powder may refer to cash reserves or liquid assets held by investors for future investments or spending, possibly including cash reserves held in savings accounts, money markets, CDs, and conservative income investments like treasuries, municipal bonds, and investment-grade bonds.

During the worst four market corrections in the last 40 years, the S&P 500 fell by an average of 40%, while bonds increased by an average of 5%. Thus, instead of selling stocks at depressed prices, investors can sometimes turn to their bond allocations to meet financial needs.

How Much Dry Powder Should You Have?

As a rule of thumb, maintaining at least three years’ worth of dry powder reserves can be critical for investors approaching or in retirement. This strategy is based on historical recovery times, as major market downturns have historically taken an average of 3.8 years to recover. Cash and income-producing assets provide more protection and flexibility, lowering the probability of selling stocks in desperation and allowing time for the equity market to recover.

Bottom Line

Bear markets often cause investors to lose sleep, but with an informed perspective of past market performance, that needn’t be the case. Market volatility, while challenging at times, can also create opportunities for higher returns in the long run. But that’s only possible for those with the patience and discipline to avoid the natural human urge to cut and run.

Prepare for the tough times, like corrections and bear markets, because they are a fact of life. The market’s best days often follow its worst ones. A solid retirement strategy, including a diversified portfolio and at least three years of dry powder reserves, can provide folks with the peace of mind to sleep well at night and stay invested long enough to reap the benefits.

This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed, and can increase, decrease, or be eliminated without notice. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. There are many aspects and criteria that must be examined and considered before investing. Investment decisions should not be made solely based on information contained in this article. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.  The information contained in the article is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.