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What’s the Difference between a Bull Market and a Bear Market?

The financial industry is filled with codes, acronyms and abbreviations that can make reading or hearing about it confusing. One example is hearing a television pundit talk about the bull or bear market. Both sound scary and possibly dangerous—but which one should actually concern you?

 

The Bull Swings Up

 

A bull market is one that’s on the rise. It gets its name because bulls raise their heads—and horns—when attacking. A bull market means the indexes that measure the performance of various collections of stocks are rising. Now, just because we might be in a bull market, that doesn’t mean that EVERY stock is rising. Some stocks will still lose value even in a very strong bull market.

 

The Bear Swipes Down

 

A bear market is one that’s falling. It gets its name from the fact that bears swipe down with their paws when attacking. In a bear market, indexes like the Dow Jones or the S&P 500 are falling in value. Similarly to what we discussed above, a bear market doesn’t mean that EVERY stock is losing value. Some stocks can do very well in a bear market. Some contrarian positions like inverse ETFs will do well too.

 

The Bull, the Bear and the Long-Term Investor

 

Most long-term investors work with their advisors to take advantage of the bull and bear runs. They do dollar cost averaging so they’re continuing to buy stocks when the market goes down, and they buy and hold positions so they can ride out the bear markets and profit on the growth during imminent bull markets. These investors will also have what are called noncorrelated assets in their portfolio. These are assets with performance that is not tied to the market so they can help cushion losses while tempering gains.

 

Some investors, however, choose a more active trading style, short selling in bear markets and buying and selling various derivatives. These are sophisticated strategies that may be a good fit for your savings plan, but they should not be attempted without the assistance of an advisor unless you’re very familiar with the markets and trading.

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