More Straight Talk on Investing

19Bear Markets Will Test Your Resolve

Can you advise me of the action to take regarding this fund? I have lost $50,000 in this fund (I want to throw up as I write this) and am curious about the reason for the losses and, more importantly, the prediction for the future performance.

I usually stay the course but am now questioning that course of non-action and seek your advice.

—Letter from a Vanguard client

Bear markets are a regular part of investing in stocks and bonds. But that's small consolation when you're stuck in the middle of one. Even the most seasoned investors, such as the Vanguard client above, find bear markets difficult to endure.

As I was putting the finishing touches on the first edition of this book in July 2002, we were mired in a deep and prolonged bear market. It would turn out to be the longest bear market in U.S. stocks since World War II; stock prices declined more than –49% over two-plus agonizing years.

Stocks rebounded strongly in 2003, but it was trying times for stock investors who rode out the slump. The bear market began unofficially in March 2000 with the bursting of the speculative bubble in technology and internet stocks. Though the tech stocks in the Nasdaq Composite Index were hit hardest, they pulled many other stocks down with them. As measured by the price change in the S&P 500, the U.S. stock market fell –10.1% in 2000, –13.0% in 2001, and another –23.4% in 2002. U.S. stocks have since experienced two additional bear markets: 2008–2009 ...