In the world of investing, the stock market has always been ruled by two very intimidating and unpredictable animals prone to emotional outbursts and a distrust of people, especially those wearing a red cape or carrying a pot of honey. This is the awesome power of bulls and bears.
But when it comes to investing, there’s no reason to fear them. They simply represent the two major twists and turns of the stock market over time. Understanding what they are and keeping history in perspective are keys to being a confident and successful investor.
This is Bull
A bull market is a period when the stock market moves higher, usually accompanied and driven by a growing economy and increasing corporate profits. Bull markets are characterized by optimism, investor confidence and expectations that strong results should continue for an extended period of time. They tend to last for several months and even several years.
A bear market is a period when the stock market experiences a strong downward swing. It is often accompanied by (and sometimes precedes) an economic recession. The market usually has to drop at least 20 percent from its peak before it is considered a bear market. It can last multiple years or just a few weeks.
A Snake in the Grass
Sometimes the market seems to be wandering aimlessly around a forest looking for honey, and other times it appears to be charging at a man with a big red cape. A short-term duration where the market drops more than 10%, but less than 20%, is known as a market correction. These are significant declines that can be a real test of confidence for investors, especially for those who haven’t experienced many of them in their investing careers.
Just keep this in mind: market corrections and bear markets will always be a part of investing, and that can be a good thing. They are usually great opportunities for smart investors to take advantage of lower prices on stock (and stock fund) investments before the prices start going up again.
Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.