Bull or Bear Markets: When’s the Best Time to Invest?

When it comes to investing in individual stocks or a stock-based mutual fund, a common saying is that investors should try to “buy low, sell high.” In reality, this is nearly impossible to achieve—no one can reliably predict the exact time the market will finish falling or when it will reach its peak.

Perhaps the only guarantee is that stock markets are cyclical and will go up and down over time. If you are a long-term equity investor, you’ll likely experience significant market swings, often referred to as bull and bear markets.

What’s the Difference Between a Bear and Bull Market?

By many accounts, a bull market is typically defined as a period of high investor optimism when stock prices rise 20% or more from a previous low. For example, after the global financial crisis (GFC), US stocks rose by about 400% during a period from March 9, 2009, to February 19, 2020, as the US economy recovered from the GFC and experienced a decade of economic growth.1

In contrast, an equity bear market is usually considered a drop in stock prices of 20% or more from a recent peak during a period of widespread investor fear and pessimism. According to that definition, an equity bear market occurred between February 19, 2020, and March 23, 2020, when US stocks fell by about 35% as the global COVID-19 pandemic deepened.2

What Should I Do When the Stock Market Falls?

As you can see, equity markets can fluctuate from season to season and during periods of market turmoil. Although equity bear markets can be unnerving, financial professionals typically suggest investors stick to their investment time horizon, have a diversified portfolio of stocks and bonds, and take a long-term, buy-and-hold mentality.3 In other words, don’t panic and sell when the market dips.

In addition, it may be tempting for many investors to try to “buy the dip” when stocks are at a perceived low. Although some market commentators might argue that strategy has worked at times in the past, there is no guarantee that it will work in the future. By trying to guess exactly when to invest, you may miss out on some potential losses, but could also miss some potential gains. Missed opportunities like these could inhibit you from reaching long-term financial goals.

Dollar Cost Averaging in Action

The chart below shows how DCA works. In this example, the client invests $100 in a mutual fund each month for 12 months.

Dollar Cost Averaging Graph

In the hypothetical example, the dollar cost averaging strategy ended up with a greater amount of total shares, and hence more money (greater current value), at the end of the 12 months. An important note to remember is that the value of your investment is based on the number of shares you have and DCA may help you maximize the number of shares you own.

Total InvestmentAverage Cost per ShareTotal SharesCurrent Value
Lump Sum $1,200 $10 120 $1,200
DCA $1,200 $9.16 131 $1,310

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