With the market currently at all-time highs, it might seem unusual to discuss bear markets at this time. While I remain optimistic about 2025, I believe it’s important to acknowledge the risks as well. Addressing potential downturns helps investors prepare, make informed decisions, and stay focused, especially when market conditions aren’t as favorable.

2024 was an impressive year for the market, with the S&P 500 soaring over 23%, a remarkable performance that followed 2023’s 24% gain. Two consecutive years of strong returns have served as a powerful reminder of the market’s resilience and ability to recover. However, it’s important to remember that 2022 was a much more challenging year, with the S&P 500 suffering an 18% loss. And let’s not forget 2008, when the S&P 500 plummeted 38.49% during the global financial crisis.

During the 2008 market meltdown, I was working as a new broker at TD Ameritrade, and I vividly remember the chaos. Investors were calling in panic, flooded with fear and uncertainty. The media was filled with negative headlines, and many investors were rushing to sell their positions. The call queue was long, with frazzled investors eagerly waiting for a broker to answer so they could shout, “SELL, SELL, SELL!” There was a rush to safety, as the market decline came unexpectedly, and investors were desperate to get out. Goals, retirement plans, and potential recovery were quickly forgotten. They just wanted to escape the pain and move to cash. Few realized that this was an extraordinary buying opportunity. What appeared to be a crisis was in fact a fire sale, offering steep discounts on solid stocks. But, as always, these opportunities were short-lived. The very next year, in 2009, the market surged by 23.45%, followed by a solid 12.78% return in 2010.

These events highlight the cyclical nature of the market. Growth is often followed by a correction, and corrections are eventually followed by recovery. The strong back-to-back years of growth in 2023 and 2024 demonstrate just how quickly the market can rebound. While corrections and bear markets can be uncomfortable, they are part of the natural cycle of investing.

Bear Markets and Corrections: A Matter of “When,” Not “If”

With the market at all-time highs, it’s not a question of if a bear market will happen, but when. It could be this year, next year, or even in the next decade—but it’s coming. Similarly, market corrections, defined as declines of 10% or more, are a regular part of the investment cycle. They often occur about once a year, and while they are unsettling, they are typically short-lived and lead to recovery.

On average, a correction sees a drop of about 13.4%, lasting around 54 days. So, while bear markets are more severe, corrections remind us that market volatility is a natural part of the investment landscape. Whether it’s a smaller correction or a full-blown bear market, these dips are inevitable—and something we should expect, not fear.

Bear markets, which typically occur every 3-5 years, are marked by a decline of 20% or more from the market’s peak. For those of us in our 50s or older, we can expect to experience 30+ market corrections and 7+ bear markets yet to come. Volatility is certainly ahead; however, there’s no need to fear these downturns. Though bear markets and corrections can be difficult, they also present opportunities. Every bear market in history has eventually been followed by a bull market—100% of the time. The market has a proven track record of bouncing back and even surpassing previous highs. Downturns are temporary, and just as the next bear market will happen eventually, the next bull market is always just around the corner.

Opportunities During Corrections and Bear Markets

• 1. Stay Calm, Stay Invested: Bear markets and corrections are part of the investment cycle, and they have always recovered. Resist the urge to panic. Keeping a long-term perspective will serve you well and help you avoid making impulsive decisions that can harm your portfolio.
• 2. Put Idle Cash to Work: If you have cash sitting on the sidelines, consider investing it during downturns when prices are lower. This will help position you for future growth when the market rebounds.
• 3. Maximize Your Roth IRA Contributions: Roth IRAs offer unlimited tax-free growth, making them an excellent long-term investment vehicle. Take advantage of any dips to fully fund your Roth IRA up to the contribution limit, allowing your investments to grow tax-free.
• 4. Consider Roth Conversions: If you have a Traditional IRA or 401(k), a correction or bear market could be an ideal time to convert it to a Roth IRA. Since your investments would be temporarily down in value, the tax burden for the conversion could be lower. This strategy allows your funds to grow tax-free in a Roth IRA, potentially saving you money in the long run. Be sure to consult with your tax professional to determine if this approach suits your financial situation.
• 5. Tax-Loss Harvesting: If you have taxable accounts (such as a joint or individual investment account), consider selling investments that are currently at a loss. This strategy allows you to offset gains elsewhere, reducing your overall tax liability.
  However, it’s essential to work with a financial advisor to ensure this strategy is implemented properly.

Stay tuned for further updates, and remember, we’re here to help you achieve your financial aspirations, no matter what the market throws your way. Call me (Bret) at 623-256-7167, email me at bret@gppln.com, or visit our website at www.greenpeaksplanning.com.