Key Points

  • During bear markets, many investors choose to sell some or all of their stocks.

  • History suggests that doing so can be a big mistake.

  • Bear markets present an opportunity you shouldn't miss.

  • 10 stocks we like better than S&P 500 Index ›

A 20% stock market decline can easily feel like the point where it's time to head for the exits.

After all, a drop of that magnitude, which meets the technical definition of a bear market, can be psychologically damaging. The headlines usually get worse, investor confidence drops, and there's no guarantee that a 20% loss won't eventually become a 30% or 40% loss.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

But here's the part that most investors miss. Historically, some of the market's strongest returns have occurred during recessions and bear markets. Sentiment often turns quickly once optimism returns, leading to big rallies at unexpected times.

If another bear market hits, history suggests that what happens afterward could be much more important to your portfolio than the initial 20% drawdown.

Historically, bear markets have created big opportunities

Fidelity recently took a look at S&P 500 (SNPINDEX: ^GSPC) corrections and bear markets between 1950 and 2022. It found that following a bear market bottom, the S&P 500 generated an average return of 37% over the following year.

That's significantly higher than the stock market's long-term average annual return of around 10%.

The problem, of course, is that investors never know when the bottom is actually in. It's only in hindsight that we know where and when the bottom was. That's why waiting for the perfect buying opportunity usually results in missed gains. Investors usually fear further losses more than getting excited about potential gains.

The better lesson from history that you shouldn't ignore is that bear markets typically lead to much longer periods of rising stock prices.

Vanguard also examined market cycles between 1980 and 2023. It found that bear markets produced an average loss of 30% and lasted 282 days. Bull markets, by comparison, generated an average gain of 96% and lasted 1,018 days.

In other words, the good times have historically lasted more than three times as long as the bad ones. When investors try to time the market, they usually end up capturing the losses but missing out on the gains.

Here's what I'd do after a 20% drop

If the S&P 500 falls by 20%, I'd maintain my long-term focus and continue buying the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI) regularly.

This process won't guarantee gains or the avoidance of losses. But it would allow you to capture the rebound when it happens. And it allows you to continue buying shares at lower prices than before, which can enhance your long-term portfolio's performance.

Bear markets can be painful. Historically, though, the periods following major sell-offs have produced some of the market's strongest returns. Savvy investors would be wise not to miss out on the opportunities that are presented.

Should you buy stock in S&P 500 Index right now?

Before you buy stock in S&P 500 Index, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $421,997!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,413,876!*

Now, it’s worth noting Stock Advisor’s total average return is 978% — a market-crushing outperformance compared to 213% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.

*Stock Advisor returns as of September 8, 2026.

David Dierking has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.