Bear Market
Marché baissier in French
Quick definition
A bear market is a decline of 20% or more in stock prices from a recent peak. Bear markets are a normal, recurring part of investing: sharp and frightening while they last, and so far always followed by a recovery.
The 20% convention
When a broad index falls 20% or more from its peak, the drop earns the bear market label; declines of 10% to 20% are merely corrections. The threshold is arbitrary, but the character is real: where a bull market grinds higher for years, bear markets tend to be sharp, fast and emotionally loud.
They are also recurring: a long-term investor should expect to live through several, and markets have recovered from every bear market so far. Nothing guarantees the next one, but betting against a recovery has been the losing trade throughout market history.
One honest footnote: bear markets are not exclusive to stocks. Bonds can have them too, especially when interest rates rise quickly.
What to actually do: usually nothing
If your portfolio was built to match your risk tolerance, a bear market is the event the plan already priced in: the mix you chose was chosen precisely because you could hold it through a 20% or 30% drop. Doing nothing is not passivity; it is the plan working.
For anyone still saving, contributions should keep flowing. Every automatic purchase in a bear market buys more units at lower prices, which is dollar-cost averaging doing exactly what it was designed to do. In taxable accounts, tax-loss harvesting can even put the decline to work, realizing losses to offset capital gains while staying invested.
The one unrecoverable mistake
Selling near the bottom is the one error a bear market makes permanent. A loss on the screen stays temporary until you sell. Markets do not announce the recovery, and the early rebound is typically fast and violent, so investors who bail out routinely miss it and pay higher prices to get back in. Nearly every other investing mistake can be repaired later; that one usually cannot.
The retiree exception
The calm advice above has one big exception: people already drawing income from their portfolio. Selling investments to fund spending in a bear market does lasting damage, a problem known as sequence of returns risk; the standard defence is a cash buffer of one to three years of planned withdrawals, spent during the downturn so depressed investments can recover untouched.
In Canada
For Canadians holding US and international investments, bear markets often arrive with a built-in shock absorber: the Canadian dollar has tended to weaken in global downturns, cushioning the value of foreign holdings measured in Canadian dollars. It is not a strategy, but it helps explain why a globally diversified Canadian portfolio often falls less than the headlines suggest.
Worked example
Marc, 35, watches his $200,000 portfolio shrink to $155,000 in a bear market. His mix was chosen for his risk tolerance, so he changes nothing, keeps his automatic $500 biweekly contribution buying cheap units, and stops checking his account daily. When the recovery comes, the units bought through the decline rebound hardest, and his portfolio passes its old peak. The bear market cost him sleep, but not a dollar of realized loss.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026