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Bear Market? Don’t Panic. Here’s How To Invest During One

Bear markets are among the scariest market events you'll encounter. But long-term investors can stay the course.

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The words "bear market" strike fear into the hearts of many investors, but the reality is these deep market downturns are unavoidable. They also tend to be relatively short, especially compared with bull markets. Bear markets can even provide good investment opportunities, as long as you're investing for the long-term.

But here's one of the most important things to remember when stocks get scary: stay calm. Panic selling will lock in your losses, while sitting tight to assess your situation gives you the opportunity to benefit from any eventual recovery in the markets.

» Read more: Here’s what you need to know when the market crashes

What is a bear market?

A bear market occurs when a broad market index such as the S&P 500 falls by 20% or more from its most recent high. The reverse of a bear market is a bull market, characterized by gains of 20% or more

While 20% is the threshold, bear markets often plummet much deeper than that over a sustained period. Although a bear market may have a few occasional “relief rallies,” the general trend is downward.

Short dips don't count as bear markets.

Bear markets are characterized by investor pessimism and low confidence. During a bear market, investors often ignore any good news and keep selling, which pushes prices even lower.

Eventually, investors find stocks attractively priced and start buying, officially ending the bear market.

When investors are bearish on an individual stock, that sentiment is unlikely to affect the market as a whole. But when a market or index turns bearish, almost all stocks within it begin to decline, even if individually they’re reporting good news and growing earnings.

» Search here for a financial advisor who can help

Stock market dips can be scary, but knowing the basics of how to invest can help. You can also learn about how to invest during a recession and recession-proof stocks.

Are we in a bear market?

Two bear markets occurred recently. First, the Nasdaq Composite index, which includes some of the biggest technology companies, fell into a bear market on Friday, April 4, 2025, after the index dropped more than 22% from its recent high.  Second, on Monday, April 7, 2025, the S&P 500 briefly entered into a bear market, having fallen roughly 20% from its most recent high in February.

» Read more: Bear market vs. bull market

Brokerage firms

on Charles Schwab's website

on E*TRADE's website

on Vanguard's website

on Fidelity's website

How long do bear markets last, and what causes them?

A bear market often occurs just before or after the economy moves into a recession, but not always.

Investors carefully watch key economic signals — unemployment rates, wage growth, inflation and interest rates — to judge whether the economy is slowing. When they see indications of a shrinking economy, investors may expect corporate profits to decline in the near future, which makes the shares of those companies worth less money. To avoid anticipated investment losses, they sell stocks, pushing share prices and the market lower.

In the April 2025 stock plummet, traders feared new tariffs could spark an international trade war, which could increase prices for goods, in turn reducing the demand for those goods, thus reducing profits for the companies that made those goods, and in turn reducing the value of the shares of those companies.

Bear markets tend to be shorter than bull markets — 363 days on average — versus 1,742 days for bull markets. They also tend to be less statistically severe, with average losses of 33% compared with bull market average gains of 159%

» See our picks for the year's best financial advisors

How to invest during a bear market

1. Make dollar-cost averaging your friend

Dollar-cost averaging is the strategy of investing in stocks or funds at regular intervals to spread out purchases. By investing over time, you'll buy both when prices are low and high. This smoothes out your average purchase price.

Nerd tip: If you make regular contributions to an investment or retirement account, such as an individual retirement account (IRA) or 401(k), you may already be dollar-cost averaging.

For long-term investors, a market downturn can simply mean stocks and other investments are on sale.

2. Diversify your holdings

Boosting your portfolio’s diversification — so it includes a mix of different assets — is another valuable strategy, bear market or not.

During bear markets, the companies in a given stock index, such as the S&P 500, generally fall — but not necessarily by similar amounts. That’s why a well-diversified portfolio is key. If you’re invested in a mix of relative winners and losers, it helps to minimize your portfolio’s overall losses.

This “defensive” strategy might mean adding the following assets to your portfolio:

Dividend-paying stocks. Even if stock prices aren’t going up, many investors still want to get paid in the form of dividends. That’s why companies that pay higher-than-average dividends will be appealing to investors during bear markets. (Interested in dividends? See our list of high-dividend stocks.)

Bonds. Bonds also are an attractive investment during shaky periods in the stock market because their prices often move in the opposite direction of stock prices. Bonds are common components of many portfolios and , may help ease the pain of a bear market.

3. Consider sectors that perform well in recessions

What investments do well in bear market? Think about the things consumers will need no matter what – those are the sectors that tend to perform well during market downturns. Even amid high inflation, people still need gas, groceries and health care, so things such as consumer staples and utilities usually weather bear markets better than others

You can invest in specific sectors through index funds or exchange-traded funds, which track a market benchmark.

For example, investing in a consumer staples ETF will give you exposure to companies in that industry, which tends to be more stable during recessions. 

An index fund or ETF offers more diversification than investing in a single stock because each fund holds shares in many companies.

4. Focus on the long-term

Talk with a qualified financial advisor if you have trouble keeping your hands off your investments during a bear market. Bear markets test the resolve of all investors. While these periods are difficult to endure, history shows you probably won’t have to wait too long for the market to recover. And if you’re investing for a long-term goal — such as retirement — the bull markets will likely overshadow the bear markets

Still, resisting the temptation to sell investments when markets plummet is difficult. Some investors may be tempted to try to profit from a downturn via short selling or put options, but these are risky and advanced techniques that aren't right for everyone.

What's the difference between a bear market and a market correction?

The main difference between a bear market and a correction is that bear markets are bigger than market corrections. Corrections are typically brief, shallow drops of between 10% and 20%

The bottom line on bear markets

It can be scary to see stock prices fall 20% or more from a recent high — but the one thing investors shouldn't do is panic.

The average bear market lasts less than a year, and investors can mitigate the effects through simple techniques such as dollar-cost averaging, diversification, investing in relatively recession-resistant sectors and focusing on the long-term.

» Still worried about a recession? Here’s how to choose a good financial advisor

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