DEFINITION:
A bear market is a period during which the prices of securities fall by at least 20% from recent highs, often accompanied by widespread pessimism and negative investor sentiment.
WHEN AND WHY IT’S USED:
A bear market is used to describe prolonged periods of declining asset prices, typically reflecting an overall downturn in economic confidence. Investors and advisors refer to bear markets when discussing market risks, as declining prices can erode portfolio values and signal an economic slowdown. During such periods, the focus often shifts toward defensive strategies and capital preservation.
IMPORTANCE IN COMMUNICATION:
Discussing bear markets with your advisor ensures you understand the risks involved during periods of declining prices. It helps you grasp why your advisor might recommend more conservative strategies to protect your investments. This conversation is key to aligning your risk tolerance with current market conditions and maintaining confidence through volatile periods.
Furthermore, clear dialogue about bear markets enables you to explore tactical measures—such as diversification or tactical rebalancing—that can help mitigate losses. It builds a common language for discussing downturns and fosters a proactive approach to portfolio management during challenging economic times.
EXAMPLES IN COMMUNICATION:
“How should we adjust my portfolio in response to the current bear market conditions?”
“What strategies can we implement now to protect my investments during this downturn?”