What Is a Bear Market? A Plain-English Guide
A bear market is a 20% drop from recent highs. Here's what causes them, how long they last, and what Australian investors should actually do.
By Timothy Hirou GaschereauPublished 8 min read
Try it yourself
Markets go up. Markets go down. And occasionally, they go down a lot, for a while, and every finance headline starts using the word “carnage.” That's a bear market, and if you're new to investing it can feel genuinely alarming. The good news: bear markets are a normal, predictable part of investing. This guide is part of our getting started series.
🎯 The essential: A bear market is a fall of 20% or more from recent highs in a broad market index, lasting at least two months. They feel terrible but they're temporary. Bull markets last longer and recover more ground. Trying to time the market usually backfires. The best move for most long-term investors: keep calm, keep investing, and let time do the heavy lifting.
What is a bear market?
A bear market is defined as a fall of 20% or more from a recent high in a broad market index (like the ASX 200 or the S&P 500), sustained over at least two months. That 20% threshold is the line in the sand. A drop of 10 to 20% is called a correction, which sounds gentler because it is. A correction is the market clearing its throat. A bear market is the market having a full-blown meltdown.
Quick worked example: if the ASX 200 sits at 8,000 points and drops to 6,400, that's a 20% fall. Welcome to bear territory. The term comes from the way a bear attacks: swiping downward. (The bull, by contrast, thrusts upward with its horns. Finance people love a metaphor.)
Bear market vs bull market
A bull market is the opposite: a rise of 20% or more from a recent low, usually accompanied by strong economic growth, rising corporate profits, and a general sense that everything is going pretty well. Here's how they stack up:
| Bear market | Bull market | |
|---|---|---|
| Definition | 20%+ fall from recent highs | 20%+ rise from recent lows |
| Typical trigger | Recession, rate hikes, crisis, panic | Growth, low rates, strong earnings |
| Average duration | 9 to 18 months | Several years (often 3 to 5+) |
| Average return | -30% to -50% at the trough | +100% to +200% over the cycle |
| Investor mood | Fear, panic, sell everything | Optimism, FOMO, this time is different |
| Best strategy | Stay invested, keep buying | Stay invested, keep buying |
Notice anything about that last row? The best strategy is the same in both cases. More on that shortly.
What causes a bear market?
Bear markets don't appear out of nowhere. They're usually triggered by one (or several) of the following:
- Economic recession. When the economy contracts and unemployment rises, company profits fall and investors get nervous. Fear is contagious.
- Rising interest rates. When the RBA lifts the cash rate aggressively, borrowing gets more expensive and growth assets like shares get repriced downward. The 2022 to 2023 rate hiking cycle hit global markets hard.
- High inflation. Runaway inflation erodes corporate margins and purchasing power, and tends to bring on rate hikes.
- Geopolitical shocks. Wars, pandemics, and political crises create uncertainty. Markets hate uncertainty.
- Bubbles bursting. When asset prices get wildly disconnected from underlying value (dot-com stocks in 1999, US housing in 2007), the correction can be brutal.
- Loss of investor confidence. Sometimes sentiment itself is the trigger, causing a self-reinforcing spiral of selling.
How long do bear markets last?
Not as long as they feel. Historically, bear markets average somewhere between 9 and 18 months from peak to trough. Bull markets, by contrast, tend to run for years. Here are three every Australian investor should know:
| Bear market | Period | Duration | ASX 200 fall |
|---|---|---|---|
| Dot-com bust | 2000 to 2003 | ~31 months | ~55% |
| Global Financial Crisis | Oct 2007 to Mar 2009 | ~17 months | ~55% |
| COVID-19 crash | Feb to Mar 2020 | ~1 month | ~37% |
The COVID crash deserves a special mention. It was the fastest bear market in history, dropping 37% in roughly a month, then staging one of the fastest recoveries on record. If you'd panicked and sold in March 2020, you'd have locked in a 37% loss and watched the market roar back without you. The key takeaway: bear markets are temporary. Bull markets are where the wealth gets built.
Why trying to time the market usually backfires
Here's the trap: bear markets feel so bad that selling everything seems like the rational thing to do. Get out now, wait for the bottom, buy back when things look better. The problem is that nobody, not professional fund managers, not economists, can reliably identify the bottom in real time. You only know it was the bottom after the recovery has already started.
Research consistently shows that missing just the 10 best trading days in the market over a decade can cut your returns roughly in half. The cruel twist: those best days tend to cluster right after the worst days, during the depths of a bear market. Sell during the panic and you're likely to miss the very days that do the most work. Time in the market beats timing the market.
What should you actually do during a bear market?
Here's the practical bit. None of this is personal financial advice, just the general principles long-term investors tend to lean on.
- Don't panic sell. A paper loss only becomes a real loss when you sell. If your investment thesis hasn't changed, the bear market doesn't change it either.
- Keep investing regularly. This is dollar-cost averaging: investing a fixed amount at regular intervals regardless of what the market is doing. When prices are down, your contribution buys more units. It's not magic, it's just maths, and it's the same compounding that builds long-term wealth.
- Review your risk tolerance, not your portfolio every hour. If watching your balance drop 20% keeps you up at night, your asset allocation might be more aggressive than your actual tolerance. The answer is a calm rebalance, not a panic exit.
- Focus on time in the market. The investors who build real wealth are almost never the ones who timed the market. They're the ones who stayed invested through the rough patches.
- Use it as a reality check on your goals. Investing for something 20+ years away? A bear market is a blip. Retiring in two years? That's a different conversation, worth having with a licensed adviser.
The bottom line: a bear market is a 20% fall that feels like the end of the world and almost never is. Understand it, expect it, and keep doing the boring, effective thing: investing regularly for the long term. If you're just starting out, our guides on how to start investing and index funds are good next reads.
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❓ Frequently asked questions
Is Australia in a bear market right now?
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Check the current ASX 200 level against its most recent peak. If it's down 20% or more from that high, you're in bear territory. Markets move constantly, so this article won't give you a live answer, but the definition is always the same: 20% from the recent peak.
Can my superannuation lose value in a bear market?
+
Yes. If your super is in a balanced or growth option (which most default funds are), it holds a significant portion in shares. A bear market will show up as a lower balance. That's normal and expected over a long investment horizon. Super is a decades-long investment, and short-term falls are part of the deal.
What's the difference between a bear market and a recession?
+
A bear market is about share prices. A recession is about economic output: technically, two consecutive quarters of negative GDP growth. They often overlap (the GFC being the obvious example), but they're not the same thing. You can have a bear market without a recession, and a recession without a full bear market.
Should I move my super to cash during a bear market?
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This is a personal decision that depends on your circumstances, age, goals, and risk tolerance, so it's worth speaking to a licensed financial adviser before making changes. As a general principle, switching to cash locks in any losses you've already experienced and means you risk missing the recovery. Many people who switched to cash during the COVID crash in 2020 and waited for a safe time to switch back missed a significant portion of the rebound.
How do I know when a bear market is over?
+
You don't, until it's already over. The technical signal is a 20% rise from the trough, but that's only confirmed in hindsight. This is exactly why market timing is so difficult: the recovery often looks indistinguishable from a dead cat bounce while it's happening.
Are bear markets bad for everyone?
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Not really. For long-term investors who keep contributing regularly, a bear market means buying more units at lower prices. That's genuinely good for future returns, even if it feels awful in the moment. Bear markets are only unambiguously bad for people who sell during them.
📚 Recommended reading
The Psychology of Money
Morgan Housel
The Psychology of Money
Morgan Housel
19 short stories on how people actually think and feel about money, not just the maths of it.
The Simple Path to Wealth
JL Collins
The Simple Path to Wealth
JL Collins
The friendliest on-ramp to index investing there is, born from letters a dad wrote his daughter. It makes 'buy the whole market and chill' feel obvious, just map his US fund picks onto Aussie equivalents and super.
The Barefoot Investor
Scott Pape
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article contains general information only and does not constitute personal financial advice. Investment markets are volatile and past performance is not a reliable indicator of future results. Consider your own circumstances and speak with a licensed financial adviser before making investment decisions.
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Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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