First, sorry for the ominous headline.   In truth, the US stock market has been one of the greatest engines of wealth creation the world has ever known.  Since 1900, the Dow Jones Industrial Average has made an annual average return of 9.7%.   Nice.

However, as the saying goes, there’s no such thing as a free lunch.   The cost of such greatness is volatility, which at times can be stomach turning.  From 1900 through 2017 there have been 32 instances where the market has fallen by more than 20%, the definition of a bear market.   Put another way, we see a bear market contraction roughly every 3.5 years on average.   Notably, we have not seen one of those since the Great Recession more than 8 years ago.

Speaking of greatness, some people now expect an imminent pull-back.  These folks believe that recent market highs are based, at least in part, on Trump-fueled hype.   Others disagree, saying the strength of the market is more a reflection of the recent pick up in US and Global economic activity

Regardless of who is right, we still have to accept that inevitably we will see another bear market at some point.   With the stock market reaching a new high on March 1 at 21,115, a 20% drop would translate to a loss of 4,000 points or more.   Ouch.

What does this mean for the average person saving for retirement?  Over the long-term, hopefully very little:  investing consistently through the market cycles has been extremely rewarding over the years.  However, trying to time the markets to avoid losses has often been a recipe for disaster.   The average bear market lasts about 15 months and more often than not, getting out means missing out.   A great example is 1996.  That year economists were already beginning to sound the alarms about an overheating market.   However, the crash, severe as it was, didn’t come until 2000.   An investor who got out in 1996 (yet avoided the 2000 crash) would have been better off just staying the course.

That said, we recognize that sitting on our hands through a 4,000 point drop, while recommended, will not be easy.  It will require resolve and perhaps a bit of hand-holding.   If you are particularly anxious, speak to your advisor about strategies that offer downside protection.   Preparation can take many forms, however, sometimes just knowing what to expect, can make the difference between patience and panic.