Have you dipped your toe into investing and heard terms like bull market vs bear market thrown around? These terms describe market conditions, which are important to understand if you’re investing your money. Current market conditions impact how you choose to invest your money.
So, how’s a bull vs. bear market different, and how can understanding them help you make informed investment decisions? Let’s get into it.
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What is a Bull Market?
Like a charging bull ramming its horns upward, a bull market occurs alongside an economic upswing. Prices are rising, investor confidence is booming, and market conditions are favorable. Investors believe that the market will continue to grow and prosper.
Typically, a bull market refers to a period in which asset prices increase by 20% or more compared to the most recent low. Bull markets usually coincide with a strengthening economy and likely stable or falling unemployment, allowing people to spend more money and increase business profits.
Historically, bull markets tend to last longer than bear markets. Notable bull markets include the post-World War II Boom from 1949 to 1953, one that started in October 1990 and ran for 113 months, and recently, one that began in 2009 and ran through 2019.
Although not a historic run, a bull market was declared in June 2023 and continues today.
Pro Tip: Whether you’re investing in a bull market or bear market, it’s important to stay on top of your portfolio and its performance. Ziggma’s portfolio tracker will provide you with powerful insights into everything from your portfolio’s riskiness to the income it’s generating.
What is a Bear Market?
Whereas a bull market sees an increase in prices and favorable conditions, a bear market depicts the opposite. Possibly getting its name from how a bear slashes its claws when attacking its prey, a bear market is a period of declining prices and an overall decline in market conditions. Investors confidence in the market wanes, and they tend to be more risk-averse.
A general rule of thumb for bear markets is periods where market prices decline 20% or more from the most recent high. They tend to occur when the economy weakens as unemployment rises and consumer spending decreases. These conditions cause a decline in overall business earnings.
Luckily, bear markets tend to last shorter periods than bull markets. Historically, bear markets include the Great Depression of 1929, one from the late 1960s to early 1970s, and the dot-com crash of 2000.
A recent bear market occurred in March 2020 due to the COVID-19 pandemic. This was the first time in 11 years that the Dow Jones Industrial Average (DIJA) had been in a bear market.
Bull Market vs Bear Market
| Bull Market | Bear Market | |
| Performance | Market Prices Rising 20% from the Most Recent Low | Market Prices Declining 20% from the Most Recent High |
| Economic Indicators | Investor Confidence Booming and expanding GDP | Investor Confidence Waning and shrinking GDP |
| Average Length | 6.6 years | 1.3 years |
| Average Returns | Average gains of 339% | Average loss of 38% |
How to Invest in a Bull vs. Bear Market
Investing in a Bull Market
With rising stock prices and growing optimism in the stock market, it’s easy for investors to get overzealous with their investments. If you get too carried away, you can make mistakes like buying overvalued stocks or letting your emotions or the behavior of others influence your decisions. Taking too much risk during a bull market can turn into losses if the financial markets take a dive.
Luckily, a few easy ways to invest wisely in a bull market exist.
Stick to your investment strategy: By creating an investment strategy, you can make decisions that make sense for you and not spontaneous emotions or the influence of others. By letting your financial plan dictate your investment decisions, you can avoid the consequences of overconfidence and impulsively buying stocks.
Research before you purchase: Don’t let the allure of trendy stocks distract you. Make sure you understand the stocks you are investing in.
Maintain a diversified portfolio: During a bull market, it’s tempting to branch out and invest in rising stocks that promise higher-than-normal returns for a quick profit. While some may reap the benefits of this strategy, others will suffer the consequences when the market takes a turn. Maintaining a diversified portfolio that includes investments in different asset classes allows you to spread your money across different investments to hedge your risk while still participating in the market.
Continue investing: Regularly putting money in the market is a good idea to keep yourself in the game. Remember to stick to your budget, though, and not over-extend yourself.
Also Read: How to Invest $5k
Investing in a Bear Market
Prices are down, and you’re nervous about how low the market will dip. This is completely normal, but, like our advice for a bull market, you want to keep things in perspective and not overact. Pulling your money out of the market too quickly can result in costly mistakes you want to avoid.
Keep these tips in mind when investing in a bear market.
Don’t immediately dump everything: With prices continuously falling, you may get scared by how much money you lose and decide to sell. This can lead to excessive losses and make it harder to enter the market again when prices rebound, especially since it is nearly impossible to time the market. It pays to be patient and invest for the long term.
Rebalance your portfolio: You may have taken additional risk during the bull market. However, you’ll want to rebalance your portfolio to your optimal risk tolerance during a bear market. This will help you avoid more significant losses than you’re comfortable with.
Also Read: What Does It Mean To Buy The Dip?
The Bottom Line
Now that you understand bull vs. bear markets better, you can make informed investment decisions when they inevitably come around. Remember, it’s always a good strategy to keep your emotions in check when making investment decisions, regardless of market conditions.
Frequently Asked Questions
Is it better to buy in a bull or bear market?
Both bull and bear markets present buying opportunities, but each will require a different approach. Buying during a bull market cycle tends to be easier because many companies see price appreciation. However, no matter when you’re looking to buy, it’s important to do your research and buy based on strong fundamentals.
Is the US currently in a bull or bear market?
The US is still in a bull market; however, there is concern that economic growth could be slowing down.
How to tell if a stock is bullish or bearish?
One of the best ways to tell if a stock is in a bullish or bearish pattern is to examine its Relative Strength Index (RSI). An RSI below 30 indicates a bullish trend, while an RSI above 70 indicates an overvalued and bearish one.
How long does a bull run last?
Over the years, bull markets have had a wide range of durations. However, the average bull market has lasted 6.6 years.