30 Apr 2020 2 min read

Bear market bravery: the importance of staying invested


COVID-19 and its impact on global markets are the key concerns for many investors. The question we are frequently asked is: How long will this last?



Over the past few weeks, the Asset Allocation team has had many conversations with financial advisers, planners, and wealth-management clients, discussing how to navigate the challenging market environment. Clearly, COVID-19 and its impact on global investments are key concerns for many and the question we are frequently asked is: How long will this last?

Sadly, the answer is still unknown, but it is important to distinguish between short-term volatility and long-term investing. We believe that being invested and staying invested are crucial, even during the most difficult times.

Bear markets are characterised by 20% drops in asset prices, but historically if investors have been willing to take a long-term view and are able look through the short-term falls, they have seen fruitful returns and stronger performance.

The above chart demonstrates the importance of having a long-term mindset. It shows that typically in a bear market, US equities measured by the S&P 500 index fall by 30-40%. However, over the course of the following five years, the returns have tended to rally from the very bottom by an average of 100%!

Timing the bottom is notoriously difficult yet the chart still shows that even if someone started investing after the falls but before the bottom and was willing to look through the short-term volatility, they would have still achieved strong double-digit returns.

While we understand investors’ concerns amid the current uncertainty, we would stress that having a long-term time horizon is more crucial now than ever.

However, staying invested does not mean we are sitting on our laurels, of course; we continue to proactively seek the right opportunities and mitigate risks to help our investors meet their long-term investment goals.


LGIM contributors