Bull and Bear Markets – history’s evidence that gives us hope.
The rise and fall of the stock market is not something that the vast majority of people will watch on a daily basis and feels remote from day-to-day lives. However, most people’s pension savings are invested in funds that hold stocks and shares: recent falls in share values are having a substantial effect on the money they have put aside for retirement. Other savings and investments such as Stocks and Shares ISAs are also being affected.
Periods in which share prices rise by at least 20 per cent are known in the investment profession as bull markets and those periods with share prices falling by at least 20 per cent are known as bear markets. Anecdotally, these descriptions come from the way bulls and bears attack their prey: bulls toss upwards with their horns and bears swipe downwards with their paws.
Over the past 120 years, share values have seen their fair share of bulls and bears. Figures quoted by Vanguard using data from Global Financial Data in March 2020 covering the years from January 1900 to December 2018 show that bull markets have been far more frequent and long lasting, with 103.1 total bull years as opposed to just 16 total bear years. The average length of a bull period is longer than that of a bear period too: bull periods last an average 7.9 years whereas bear periods last an average 1.3 years.
This helps to put the current market turbulence into perspective. Between 20 February and 23 March – the highest to lowest points in the current crisis – the FTSE All Share Index fell by 33.85% (FE Analytics April 2020). This is a substantial drop, but pales into relative insignificance when compared to some of the other market crashes in the past 100 years. The worst example shown in the Global Financial Data figures came back in the mid seventies with the Oil Crisis, when markets dropped by as much as 67 per cent. More recently, the tech bubble in the Noughties and the recent Global Financial Crisis saw losses of 41 and 43 per cent respectively. In all those cases, the severe bear market was followed by significant bull periods.
We have since seen some market revival with the stabilising of coronavirus data: the FTSE All Share from 22 March through to 7 April has recovered by 15.00% (FE Analytics April 2020).
For the majority of investors, therefore, the advice from their financial adviser will be to “keep calm and carry on investing”. Unless there is a specific need to access an investment portfolio, withdrawing money when the market is at its lowest will simply mean that losses cannot easily be recuperated.
Anyone that does need to access investments, such as those who want to start taking benefits from a pension fund, will need to think carefully about how to do this to minimise the impact this will have on their planning. Independent financial advice at this point will prove invaluable to ensure that long-term objectives are not compromised.