Recent market volatility had the S&P 500 flirting with Bear Market territory. At one point intraday, the S&P 500 was down by -20% from the all-time high. What is a Bear Market? The term dates back to the 18th century to describe a market that has declined by at least -20% from the previous peak. The official definition requires the market to have finished the day down by at least -20%. So, while the S&P 500 is not technically in a Bear Market (as we write this on April 23rd, 2025), it is exhibiting the symptoms of a Bear Market. What typically happens during Bear Markets? Bear Markets are characterized by extremely high volatility with big swings in price, in both directions. Bear Markets have produced the largest single-day losses as well as the biggest single-day gains. It can get very confusing. It is possible the economy will subsequently experience a recession, but it is not a requirement for a Bear Market. For example, during the 2022 Bear Market, the U.S. economy did not contract to the point of recession. Bear Markets without recessions have historically been shallower declines with a faster recovery. It is also possible that a Bear Market is what causes a recession due to negative wealth effects causing businesses and consumers to cut spending, contracting the economy. Weird things can happen in Bear Markets. Historical relationships between various assets can change. Bonds had offered stability in portfolios when stocks were down—until the 2022 Bear Market when both lost a significant amount of value. In the 2008 Bear Market, frequently referred to as the Global Financial Crisis, real estate prices fell across the United States, which had never happened before. “Things” frequently “break” in Bear Markets due to the wide swings in price and lower liquidity. Financial markets may not function as expected. During the 2020 COVID Bear Market, futures contracts for West Texas Intermediate crude oil briefly traded at a negative price. In the 2008 Bear Market, previously safe money market funds lost enough to break the buck and fall below $1.00. In Bear Markets, it is common for someone to say that “It’s different this time” and then point to the weird and broken things as justification. Claims are made that buy-and-hold investing no longer works, or that diversification doesn’t provide benefits, or that markets will take 40 years to recover, or it’s now a stock picker's market because passive investing is dead. It’s never different. What should you do in a Bear Market? Below is our guide to both prepare for and survive a Bear Market. 1. Be prepared. Your portfolio should have enough risk to meet your financial goals, but not so much risk that a Bear Market causes you to lose sleep. Prepare ahead of time with an investment allocation that includes assets other than stocks. 2. Acknowledge your emotions. The “pain” from losses feels worse than the “joy” from gains. “Fight or flight” is a natural reaction to quickly make portfolio changes to “stop the bleeding.” When markets are volatile, try not to overreact in either direction. The fear of missing out (FOMO) can turn an investor into a trader. 3. Avoid mistakes. In volatile markets, the possibility for a “mistake” increases. Big mistakes, like selling into a crash, can easily be avoided. But opportunities for small mistakes are more prevalent when markets are changing quickly with large percentage daily swings in price. 4. Understand the irony of markets. The possibility of a drop in price, ironically, is highest when markets are richly priced at all-time highs. After a -20% decline, markets have de-risked. 5. Don’t think you are smarter than the market. Markets move too fast and in unpredictable ways during a Bear Market. Trying to get out and get back into the market has been shown to be a fool’s game. Missing the market’s best days has a dramatic impact on long-term results. And most of the market’s best days occur within Bear Markets. 6. Realize the difference in time horizon. Wall Street is focused on today, tomorrow, and this quarter. Their decisions are made within this short-term framework. Your investment horizon is next year, five years, and 25 years. Your long-term time horizon can allow you to take advantage of Wall Street’s shortsightedness. 7. Accept that nobody knows. Last week, on April 9th, Goldman Sachs called for a recession as their “base case” economic forecast. Seventy-three minutes later, they reversed their call, downgrading their projections of a recession. That same day, on April 9th, the S&P 500 gained 9.5% over the course of four hours. Either the long-term fundamental value improved by $4.5 trillion, or nobody really knows. 8. Realize that nobody rings a bell at the bottom. You won’t know that was “it” until much later. Concede that investment decisions take time to reach maturity and may go down before they go back up. 9. Bear Markets have tended to be shorter than bull markets. The average Bear Market typically lasts 11 months from top to bottom. However, the time it takes to recover from losses varies based on the severity of the Bear Market. The 2020 COVID Bear Market took five months to recover. The 2000 Dot-Com Bear Market took seven years. 10. Turn the TV off. Television, financial news, and social media are all designed to drive engagement. They do not have your best interest in mind. 11. Know where your cash is. Line up cash to meet your spending needs for the next year or two. This creates peace of mind to avoid having to raise cash in the midst of a downturn and de-risks the portfolio. 12. Stay diversified. Different assets respond differently in Bear Markets, reducing dramatic swings in the value of the overall portfolio. 13. Watch your allocations. Wide swings in values will move your portfolio out of line with the targeted allocations. Rebalancing keeps your risk in line with targets. Consider smaller, more frequent rebalancing to minimize the risk of bad timing. 14. Dollar cost average. This is the process of investing a certain amount of money at regular intervals, regardless of the market price. If you are in the Accumulation phase, Bear Markets provide an opportunity to purchase more shares at a lower cost. This same principle can be applied when withdrawing funds from the portfolio through portfolio sales occurring at regular intervals, regardless of the market price. 15. Tax loss harvesting. Sell a position for a tax loss, use the loss to first offset gains generated elsewhere in the portfolio, then deduct up to $3,000 against other income. Additional losses can be used in future years. Use the proceeds from the sale to replace the original position in something different that still provides market exposure. Watch out for the Wash Sale Rules. 16. IRA to Roth conversions. Converting a Traditional IRA into a Roth IRA in a down market lowers the tax cost of the conversion and shifts gains from a market recovery into the Roth account to grow tax-free. 17. Super fund 529 plans. You can fund five years’ worth of gifts into a 529 plan for education all at once, without concern of incurring gift tax, by electing to treat the contribution as if it were spread over five years. The hope is a recovery in investment markets accrues to beneficiaries. 18. Front load your 401(k) contributions. Pulling forward contributions into your 401(k) plan that you would have normally made throughout the year allows you to invest more in a market with depressed prices. But before you do, double-check how the company matching works to avoid missing out. 19. Take advantage of the dislocation. Time is the only variable you cannot control when compounding money. Time waits for no one. But Bear Markets are like a time machine, offering opportunities to make investments at prices you wish you had years ago, before the start of the last bull market. If you made it to the end of this article, thank you! If our thoughts above resonated with you, but it sounds like something a professional should be handling for you, get in touch with us to discuss how Highland can help you. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Opinions expressed herein are solely those of Highland Investment Advisors, LLC and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation. Advisory services are offered by Highland Investment Advisors, LLC a SEC Investment Advisor.
Below is a summary of the first-quarter 2025 market performance and economic commentary. The full market performance report (PDF) , including commentary and charts, can be found here . Market Performance ๐The US equity market posted negative returns for the quarter and underperformed both non-US developed and emerging markets. Value outperformed growth and small caps underperformed large caps . ๐REIT ( real estate investment trusts) indices outperformed equity market indices. ๐ Within the US Treasury market, interest rates generally decreased during the quarter. The yield on the 10-Year US Treasury Note decreased 0.35% to 4.23%. ๐The Bloomberg Commodity Total Return Index returned +8.88% for the first quarter of 2025.
These are the cornerstones of our approach to portfolio management philosophy, ensuring your investments are aligned with your goals and built for long-term success. Simple, low-cost, and tax-efficient investing that focuses on long-term growth and minimizing unnecessary risks. Disciplined, diversified strategies designed to avoid costly mistakes and deliver consistent, market-based returns. Personalized portfolios that balance growth, risk reduction, and inflation protection to help you achieve your financial goals. Looking for a deeper dive on the principles that guide our investment philosophy? Continue below. Simple, Low-Cost, and Tax-Efficient We believe in keeping your investments simple, low-cost, and tax-efficient. By simplifying the process, you gain a clearer understanding of how your money is working for you. A highly diversified, low-cost strategy frequently generates better long-term results, allowing you to take on just the right amount of risk to achieve your goals. Avoid Costly Mistakes Successful investing is about avoiding common mistakes—chasing “hot” stocks, trying to time the market, or reacting emotionally to short-term news. Our disciplined approach helps you avoid these pitfalls and capitalize on long-term opportunities to grow your wealth. Reject Wall Street’s High-Cost Games We stay clear of Wall Street’s high-fee, complex products designed to generate profit for them, not for you. Our focus is on straightforward, transparent investment strategies that keep your costs low and your goals in sight. Passive Strategies Outperform Most active managers fail to consistently beat their benchmarks over time. We focus on achieving market returns through a passive, diversified approach, reducing unnecessary risk, costs, and taxes that eat into your returns. Maximize After-Tax Returns It’s not just about what you make—it’s about what you keep. Our strategies focus on maximizing after-tax returns by leveraging techniques like tax-loss harvesting, asset location, and rebalancing, all while minimizing taxable events. Smart Risk for Your Goals The right portfolio is one that takes on enough risk to help you meet your long-term financial goals, but not so much that it keeps you awake at night during market volatility. We carefully balance growth assets, risk reduction strategies, and inflation protection to match your risk tolerance and financial objectives. Know Your Investments’ Purpose Every investment has a role. Some aim for growth, some reduce risk, and others protect against inflation. We ensure that each piece of your portfolio serves its purpose, creating a balanced strategy that works for you over the long term. Global Diversification for Stability We invest globally to increase diversification and minimize risk. By holding a wide array of assets across geographies, your portfolio is less dependent on the performance of a few sectors or countries, providing a smoother path to growth. Risk Reduction Without Compromise Risk reduction strategies, like cash and bonds, form the foundation of your portfolio. These assets protect your wealth and help you weather volatility, but we carefully manage the risks associated with them, such as interest rate sensitivity and taxation. Use of Non-Correlated Strategies We include non-correlated assets and select alternative strategies when appropriate. These investments don’t move in line with traditional markets, providing additional diversification and stability. However, they come with tradeoffs, like tax inefficiency, so they are used thoughtfully.