How to Invest During a Bear Market

There's something counterintuitive about investing in a bear market. As traders jump into a plunging market, they must be willing to embrace the likelihood of further losses before seeing potentially greater returns when the bear finally yields to the bull. It's a hard pill to swallow, and many investors just can't do it. As a result, they can miss out on the opportunity to buy low.

Everyone's heard the saying "Don't try to catch a falling knife." As wise as this may sound, it doesn't help much when the bear rears its ugly head. That's because, in a bear market, it could be raining knives for quite some time. There's an upside, though: A falling stock is only a proverbial knife if you catch it the wrong way.

When markets fall, strategic traders want to catch as many high-value—yet discounted—stocks as possible without hurting themselves in the process. So how can they position themselves for the next bull market without getting mauled?

It might help to better understand the basics of tracking this type of market.

What is a bear market?

A bear market is a fundamentally-driven market decline of 20% or more. These often coincide with a weakening economy, massive liquidation of securities, and widespread investor fear and pessimism.

How long does an average bear market last?

According to CFRA data on the S&P 500^® index, the shortest bear markets lasted about three months in 1987 and 1990. This excludes the tariff-related plunge in April 2025, which technically brought the major indexes into bear-market territory, but only for three trading days.

The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months.

How bad has the average bear been?

The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%. The deepest by far happened during the financial crisis between 2007 and 2009, when the S&P 500 lost approximately 59% of its value in about 27 months. On average, past bear markets have shown a drop of 34%. Keep in mind that any bear decline can be more or less than the average.

Can a bear market wipe out all my bull market gains?

There's no way to predict the outcome of any market cycle, but we can look at historical averages:

A bear market has lasted an average of roughly 14 months.
A bull market has an average lifespan of 60 months.
A bear market has had an average decline of around –34%.
A bull market has historically seen an average rise of 165%.

If anything, history seems to have favored the bulls in the broader U.S. stock market.

This doesn't mean a bear market can't hurt trading portfolios. And when trying to trade in a bear market, traders can still make serious investing blunders, such as unsuccessfully timing the market, selling stocks at a loss, and failing to invest at the beginning of the next bull market. (Remember, there is no guarantee every stock may recover. All companies run the risk of failure.)

Investing in a bear market

Here are a few strategies to consider when investing in a bear market.

Don't go all in at once: Going "all in" means throwing one's entire stake into a single bet. If the trade goes well, it's a profit. If not, a trader can lose all their buying power and face a string of painful losses ahead.

The problem with a bear market is that it's impossible to tell whether it's at the beginning, middle, or end. Imagine putting all investable funds into a bear market that just got underway. What happens if the entire portfolio sharply loses value and consistently drops for several months?

Don't "go big or go home" if it means losing your home, figuratively speaking. Investing is about taking calculated risks, not betting on a lucky hand. So, what are the alternatives?

Build a portfolio small chunks at a time: Suppose a trader who wants to snatch up discounted shares of strong companies decides the current market environment suggests a bear economy and not a mere correction. The difficulty is in predicting how long or deep the bear market will go.

Instead of going all in at once, one might consider buying small chunks at a time, a strategy called dollar-cost averaging. Consider investing a small percentage in discounted shares based on risk tolerance and what's affordable.

Once the "buying low" begins, immediate positive returns aren't likely amid a bear market. Traders should instead focus on positioning their portfolios for the next bull market.

Although most stocks and sectors may fall during a bear cycle, some will buck the trend. And once the bear market ends, stocks in certain sectors may jump ahead of others. Unfortunately, sector rotation isn't easy to predict.

Cast a wide net to catch potential winners: When a trader buys a stock, they own the risk and growth potential of that business. If the business performs well, the shares rise in value. If not, the share value may sink. If stock holdings are concentrated in a single industry or sector, the same principle applies but on a larger scale. Hence, the value of diversification. Interestingly enough, traders can diversify their portfolios with as few as 12 stocks, targeting stocks in all major sectors.

Although diversification doesn't eliminate the risk of experiencing investment losses, it can help increase the chances of capturing better-performing assets and avoid the risk of losing overall portfolio value to any single business, industry, or sector.

During a bear economy, most stocks tend to fall; that's to be expected. Remember that the goal of trading in a bear market is to position a portfolio for an upcoming bull market by getting a preparatory boost with discounted stocks.

Bear markets tend to end in pessimism and panic

Some analysts have argued that the tail end of a bear market is characterized by the steepest levels of panic selling.

So, might this extreme end of market pessimism shine the "go" light for investors? If a trader is dollar-cost averaging carefully, the green light may always be on. But many investors miss the start of bull markets by staying on the sidelines because of fear, or they may attempt to time the market (which usually doesn't work). Remember, time in the market is more important than timing the market.

The bottom line

When a bear strikes, share prices fall hard and market values get lower. Mentally, this may trigger a sense to "buy low," which is generally a smart thing to do. But emotionally, it's hard to hold assets that are losing value for weeks or months at a time.

Exercise prudence and patience, and keep a strategic eye on downtrodden, yet valuable, assets. A bear market may not be a time to reap gains, but it's arguably a great time to sow the seeds for the next bullish season.

A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

All names and market data shown are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

Investment and Insurance Products Are: Not FDIC Insured • Not Insured by Any Federal Government Agency • Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or any of its Affiliates • Subject to Investment Risks, Including Possible Loss of Principal Amount Invested

The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co. Inc. (Member SIPC), and its affiliates offer investment services and products. Its banking subsidiary, Charles Schwab Bank, SSB (member FDIC and an Equal Housing Lender), provides deposit and lending services and products.

This site is designed for U.S. residents. Non-U.S. residents are subject to country-specific restrictions. Learn more about our services for non-U.S. residents, Charles Schwab Hong Kong clients, Charles Schwab U.K. clients.