If a Bear Market Is Underway, History Says This Is the Biggest Investing Mistake to Avoid
Key Points
Elevated valuations, higher interest rates, and artificial intelligence are factors making investors jittery these days.
Bear markets are usually significantly shorter than bull markets.
Investors must know what they own and have cash on hand to be aggressive.
As of Oct. 9, the S&P 500 (SNPINDEX: ^GSPC) is up 14% in 2026. If this trend holds, it would mark the fourth straight year the popular benchmark posted a double-digit gain. It would also mark a continuation of a bull market that began in October 2022.
The market's continued upward movement, even as macroeconomic indicators suggest problems ahead, has some investors worried. Despite the market's bullish behavior, more investors are focusing on what could go wrong. This marks nothing, but it means the bears might soon be gaining a hold.
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If investors find themselves in a bear market, history says there is one big investing mistake too many of them make, and they should really try to avoid it.
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Don't sell off your portfolio
When all an investor sees on their computer screen is red, with their positions down 20% or more, the immediate reaction might be to sell everything in their portfolio. There might be some mental relief that comes from this. They just want to stop the pain and start with a clean slate. Even the most experienced investors can't help but feel this way. Waiting for the situation to stabilize is a natural reaction.
This is a huge mistake, though. And this might be the worst move they could make. Selling their holdings at a loss means they hope the market will give them an opportunity to buy the shares back at favorable entry prices in the future. That strategy involves figuring out when to play offense and be aggressive in an attempt to correctly time the market.
This is not how successful long-term investors operate. The best investors maintain a level-headed approach to their portfolios. Of course, this means they need to understand exactly what they own so that a huge share price drop doesn't force panic selling. In fact, high-quality companies are more attractive investment candidates at lower valuations.
History says that these down cycles don't last very long. According to Stifel Financial, the average bear market since 1932 has lasted about 1.5 years. On the other hand, the average bull market has lasted 4.9 years.
Prepare for the next downturn
While the S&P 500 index continues to climb higher, it seems that a bear market is a long way off. But it's still natural to be a bit jittery right now. The market and economy are in a state of heightened uncertainty. Experts point to record valuations. There are fears about the disruptive force that artificial intelligence could pose. Higher interest rates are also worth considering.
The truth is that no one knows when the next bear market will happen. The only certainty is that one will eventually happen. You just have to be prepared for it. Again, this comes back to having a firm grasp on knowing what you own. It also involves maintaining a cash buffer so you can buy stocks when a downturn comes.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.