Sunday, November 2, 2008

Look Forward Not Back When Formulating Investment Decisions

There is no argument that this is a bear market. During times like this, investors do have a tendency to shape their investment expectations based on historical events. Given the magnitude of the market's decline, it may seem comfortable to remain on the investment sidelines. Historically though, large market advances have occurred in the periods following bear markets.

As the below table outlines, the magnitude of this bear market puts the decline as one of the five worst--declining 43%. However, returns one year following the market trough have averaged 46% over the last 13 bear markets.

(click for larger image)

bear markets and stock market returns one year later
  • Every bear market is different, and the beginning of a new bull market is only known with the benefit of hindsight.
  • However, bear markets have inevitably given way to market rebounds.

Bear Necessities: Down Markets Often Breed Opportunity ($)
Market Analysis, Research & Education
A unit of Fidelity Management & Research Company
October 21, 2008

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