MONEYSENSE 06.26
Investing in a Down Market: Opportunities in Volatility
By Ray DiBartolomeo
Staying Disciplined Amid Declines
Down markets, defined as drops of 20% or more from recent peaks, test investor resolve but historically reward those who stay invested. Since 1928, there have been 27 bear markets in the S&P 500, with stocks losing an average of 35% over about 9.6 months. Bear markets are far shorter than bull markets, which average over 2.5 years and deliver 112% gains. History shows markets always recover—after 10% declines, stocks averaged 11% gains in one year; after 20% drops, 21%. Panic selling locks in losses, whereas disciplined investors capture the rebound. Staying calm and diversified prevents missing the strong recoveries that follow every downturn.[1][2]
Dollar-Cost Averaging as a Core Strategy
Dollar-cost averaging—investing fixed amounts regularly—excels in down markets by buying more shares when prices are low, lowering your average cost basis. During the 2008 crisis, consistent monthly investors recovered much faster than those who sold and sat in cash. From 2022-2023, even with flat markets, DCA delivered over 13% IRR in many cases. Studies show it reduces emotional decisions and outperforms lump-sum timing in volatile periods. By spreading purchases, you automatically buy bargains during fear-driven sell-offs, setting up for stronger gains when the market turns.[3][4]
Embracing Value Investing in Weakness
Bear markets create deep bargains for value investors who target undervalued, quality companies with strong fundamentals. Value stocks have historically held up well or outperformed during recessions because low expectations limit their downside. Research shows value outperformed the market by an average of 11% during six major bear markets since 1963, with even stronger gains after bubbles burst. Icons like Warren Buffett bought heavily in 2008 distress, turning beaten-down assets into massive post-recovery winners. Defensive sectors like consumer staples or bonds can add ballast while hunting these opportunities.[5][6]
Learning from Historical Recoveries
Every major crash—from the Great Depression to 2022—has been followed by recovery, often with outsized gains. Post-bear market, the S&P 500 has averaged strong multi-year growth, with 1-year returns frequently exceeding 30% after troughs. Investors who bought the 2008 or 2020 lows saw portfolios compound dramatically. The data is clear: markets spend far more time rising than falling—stocks were positive 78% of the time over 95 years. The winning approach? Maintain a long-term plan, keep contributing through the dip, diversify across assets, and avoid trying to time the exact bottom. Down markets feel painful, but they’re temporary—missing the recovery is what truly hurts long-term wealth.[7][8]
Markets fluctuate, but consistent, disciplined investing through downturns has rewarded patience across decades. Focus on quality, control what you can, and let history guide your confidence.[9][10]
At Ironcrest Capital Management, we strive to make sure that everyone we work with has a strong understanding of their investments. Having a good approach and focus on the most important factors before investing is key. Our goal is to help you make the right decisions. If your current investing approach isn’t working, reach out to us so we can help.
