How a bear market is measured
A bear market is measured from peak to trough: from the highest close before the fall to the lowest close before a lasting recovery. The 20% line is a market convention, not a legal or official threshold, and no agency declares one. The SEC’s investor.gov glossary describes a bear market as a broad market index falling 20% or more over at least a two-month period, with prices declining and sentiment pessimistic; the S&P 500 is the index most often used. A bull market is the mirror image: a rise of 20% or more over at least two months.
Smaller drops have their own name. A fall of 10% to 20% from a peak is commonly called a correction, and many corrections stop short of becoming bear markets.
Two details trip people up. First, a bear market is known only in hindsight: the start is dated back to the old peak, and the end to a low that is recognized only after prices have climbed well away from it. Second, headline figures usually track a price index, which leaves out dividends. An investor who reinvests dividends loses a little less on the way down and recovers a little sooner than the price index shows.
Bear market vs. correction, recession and crash
A bear market describes prices. A recession describes the economy. In the United States, recessions are dated by the National Bureau of Economic Research’s Business Cycle Dating Committee, which looks for a significant decline in economic activity that is spread across the economy and lasts more than a few months. In recent decades it has leaned most on nonfarm payroll employment and real personal income less transfers, and it announces peaks and troughs well after they happen. By its chronology, the most recent recession ran from a February 2020 peak to an April 2020 trough.
Because stock prices reflect expectations, the two often overlap without lining up. A bear market can begin before a recession, happen with no recession at all, or end while the economy is still shrinking.
A crash is different again: a very steep fall over a day or a few days. Exchange circuit breakers can pause trading on such days, as explained on the Volatility page, but they do not stop a slide that unfolds over months. The table below sets the terms side by side.
The recovery math: why losses need bigger gains
Percentage losses and gains are not symmetric. After a fall, the recovery starts from a smaller base, so it takes a larger percentage gain to get back to even. The formula below gives the gain needed for any loss, and the hurdle climbs steeply as losses deepen. This is one reason a recovery can take far longer than the decline that caused it. Inflation stretches it further, because prices keep rising while the portfolio climbs back, so judge a recovery by your real return, not only by the date the index regains its old high.
- 10% loss: an 11.1% gain to break even.
- 20% loss: a 25.0% gain.
- 30% loss: a 42.9% gain.
- 40% loss: a 66.7% gain.
- 50% loss: a 100% gain.
- 57% loss, FINRA’s figure for the drop in stock prices in 2008–2009: a 132.6% gain.
Why bear markets hit retirees hardest
For a saver, a bear market is mostly a paper loss and a chance to buy shares for less. For a retiree, part of it can become permanent. Money withdrawn near the bottom comes from selling shares at low prices, and those shares cannot take part in the rebound. In the worked example, a $40,000 withdrawal at the low raises the gain needed to recover from a 35% decline, from 53.8% to 63.9%.
That is the heart of sequence of returns risk, and the reason the first years of retirement carry so much weight. FINRA makes the point with 2008–2009: someone who planned to retire then, when stock prices dropped by 57%, and who held most of their savings in stocks might have had to rethink the plan.
Retirees soften the blow in a few established ways. A bucket strategy or cash reserve covers several years of spending so stocks need not be sold low. A balanced asset allocation gives you bonds to draw on instead. And dynamic spending rules, such as guardrails, trim withdrawals after a bad year so fewer shares have to be sold.
What to do, and avoid, in a bear market
A bear market tests a plan more than it changes one. The decisions that help most are usually made beforehand: how much cash to hold, how much stock to own and how far spending can flex. Once a downturn arrives, the most useful steps tend to be mechanical, and the most costly mistakes tend to be emotional. These are the moves planners commonly weigh; none is a recommendation for your situation.
- Keep an emergency fund so a job loss or a large bill doesn’t force you to sell investments at a low.
- Rebalance back to your target mix, which means buying stocks after they have fallen. See Rebalancing.
- Keep regular contributions going; dollar-cost averaging buys more shares at lower prices.
- Harvest losses in taxable accounts, but don’t buy substantially identical securities within 30 days before or after the sale, or the wash sale rule disallows the loss.
- Consider a Roth conversion: converting while prices are down moves more shares for the same tax bill.
- Avoid selling everything after a steep fall or waiting to buy back at the exact bottom, which no one can spot in real time.
Illustrative numbers
A $1,000,000 stock portfolio in a 35% bear market
- loss
- The decline from the peak, as a decimal (a 35% fall is 0.35)
- Gain needed to recover
- The percentage rise required to return to the peak value
Withdrawals taken during the decline shrink the base further and raise the gain needed.
Value at the market peak$1,000,000
Value after a 35% decline$650,000
Gain needed to regain the peak: 0.35 ÷ 0.6553.8%
Withdrawal taken at the low$40,000
Value after the withdrawal$610,000
Gain needed to regain $1,000,00063.9%
The decline alone needs a 53.8% rebound. Selling $40,000 of shares at the bottom lifts the hurdle to 63.9%, because those shares miss the recovery. Holding a year or two of spending in cash or high-quality bonds is one way to avoid that sale.
At a glance
Bear market compared with related terms
| Term | Typical threshold | What it describes | Who defines it |
|---|---|---|---|
| Correction | A fall of 10%–20% from a peak | A shorter pullback in prices | Market convention |
| Bear market | A fall of 20% or more over at least two months | A sustained decline with pessimism | Market convention, as described by the SEC’s investor.gov |
| Crash | A very steep fall over a day or a few days | Sudden, panicked selling | Informal term; exchange circuit breakers can halt trading |
| Recession | A significant, widespread decline lasting more than a few months | Economic activity, not stock prices | NBER Business Cycle Dating Committee |
| Bull market | A rise of 20% or more over at least two months | A sustained advance with optimism | Market convention, as described by the SEC’s investor.gov |
Put it in your plan
Bear market in MoneyWhatIf
MoneyWhatIf’s Market Simulator can replay four named crises, starting in 1929, 1973, 2000 or 2008, and land the crash on your first retired year when the plan has one. The sequence continues through the recovery instead of stopping at the trough, and the whole plan reruns, so withdrawals, taxes and any property sale respond. Plan Resilience then deals 100, 300 or 500 reshuffled market histories, and each run you open shades its largest peak-to-trough fall in net worth and shows each year’s withdrawal as a share of the portfolio.
Common questions
Bear market FAQs
What causes a bear market?
There is no single cause. A bear market usually begins when investors decide that future profits will be lower, or risks higher, than prices had assumed. Common triggers include an approaching recession, rising interest rates or inflation, a financial crisis, as in 2007–2009, and the end of a speculative run in which prices climbed far ahead of earnings, as in the dot-com bust that began in 2000. Falling prices can then feed on themselves as investors who borrowed to buy, or who simply lose confidence, sell.
How long do bear markets last?
No rule sets a length, and they vary widely. Some reach bottom within a few months; others, such as the declines that began in 2000 and 2007, took well over a year to reach bottom and longer still to recover. Because the end is dated to a low that is only recognized after prices have risen well above it, you usually learn that a bear market is over some time after it ended.
Should I sell my stocks in a bear market?
Selling after a large drop turns a paper loss into a realized one and leaves you needing to decide when to get back in. The more useful question is whether your plan still works: whether you need the money soon, whether your allocation still fits your risk tolerance, and whether you hold enough cash to cover spending. Those answers are best settled before a downturn, not in the middle of one.
Is a bear market a good time to invest?
Prices are lower, so each dollar buys more shares, and investors with a long horizon can benefit if prices later recover. Nobody can reliably call the bottom, though, and prices can keep falling after you buy. Regular contributions, rebalancing and tax moves such as loss harvesting or a Roth conversion let you use lower prices without betting everything on timing.