How to model a typical bear market

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Joined: Mon Nov 21, 2016 11:30 am

How to model a typical bear market

Post by ngmoore »

I love this program. Thanks so much.

Luck of the draw - I retire next week and it looks like we are heading into a bear market. I recently read: "Since World War II, bear markets on average have fallen 30.4 percent and have lasted 13 months, according to analysis by Goldman Sachs and CNBC. When that milestone has been hit, it took stocks an average of 21.9 months to recover."

I've entered -30.4% for the Portfolio Return to start & stop in my retirement year at 0% Std Dev. But is there a way to account for the fact that the market takes 22 months to recover?
Last edited by ngmoore on Fri Dec 28, 2018 2:35 pm, edited 2 times in total.

Posts: 577
Joined: Thu Feb 28, 2008 6:48 pm

Re: How to model a typical bear market

Post by jimr »

It sounds to me like you've got the right idea with the approach you're taking.

Plugging in that -30% first year's return would hypothetically cover first 12 months of the bear market. You could add another 1-year return entry with 0% return (and 0 std dev), or you could model the market drop with 2-3 years of (fixed) bad returns of say -10-15% each year.

It really depends on how pessimistic you want to be. There are no right answers of course.

The main thing is to double check your work by looking at the year-by-year results to be sure the planner is doing what you expect.


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