Bear market calculator
An illustrative portfolio stress test for market downturn preparedness
Enter your portfolio’s value.
We will assume the bull market peaks this month, beginning the bear market decline.
What is a bear market?
In our definition, a bear market begins with a peak-to-trough decline in the S&P 500 on a monthly closing basis, and does not end until the S&P 500 registers a new all-time high on a monthly closing basis. In this context, bear markets have two parts: the drawdown (from peak to trough) and the recovery (from trough to new all-time high). This “time under water” period is when you may be at risk of locking in otherwise-temporary losses and incurring what we refer to as “bear market damage.”
What is your stock/bond allocation?
Pick the mix closest to your risk level.
How might your portfolio look under the worst historical circ*mstances?
Without adding to or taking from your portfolio, the value at the trough would be . Your portfolio would fully recover to its value in .
What do we mean by “worst historical circ*mstances”?
Every bear market is different, but each features three components that create risk for you as an investor: maximum drawdown, time under water, and recovery time. To stress-test your plans and portfolios, this calculator simulates a “super bear market.”
The super bear market comprises three sections: the largest drawdown the portfolio has seen in past post-war bear markets, occurring over its fastest peak-to-trough period; a “plateau” period during which the portfolio stays at its trough value; and a recovery period, where the portfolio endures a very slow-but-steady rally from the trough back to a new all-time high.
Do you plan to save or spend during the bear market?
Between and , will you make deposits into or take withdrawals from your portfolio?
I'll make deposits
I'll take withdrawals
I'll do nothing
How much per month?
Estimate the average monthly amount in this timeframe.
How might your deposits change your portfolio under the worst historical circ*mstances?
Your portfolio’s trough value would increase to , more than the if you weren’t adding to your portfolio. In , you would have , more than the without deposits. of this is due to your deposits; the remaining is from growth of your deposits during the bear market recovery.
“Risk” can be “reward”
Investors in their “accumulation phase” gain the largest benefit from the riskiest portfolios, since these portfolios’ “worst case” characteristics (fast and large drawdowns, extended “plateau” period, and a long and slow recovery period) work in their favor. So while all-equity portfolios are generally not the optimal way to maximize wealth accumulation—owning some bonds enhances risk-adjusted returns and gives additional rebalancing opportunities—they may be appropriate for investors who are contributing a sizable chunk to their portfolios and have an emergency fund to manage potential sequence risk.
Contact your advisor today
Congratulations, it appears that you are already protecting your spending needs from volatility and even adding to your portfolio at discounted bear market prices. For more ways to take advantage of market drawdowns, and to make sure you’re on track to meet your long-term goals, discuss the Liquidity. Longevity. Legacy. (3L) framework with your advisor today.
Start a conversation
The value of investments may fall as well as rise and you may not get back the amount originally invested.
Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
How might your withdrawals change your portfolio under the worst historical circ*mstances?
Your portfolio’s trough value would decrease to , lower than the if you didn’t withdraw from the portfolio. In , you would have , which is less than the recovery value without withdrawals. of this is due to your withdrawals throughout the bear market; the remaining represents what we call “bear market damage”.
What do we mean by “bear market damage”?
When an investor is forced to sell out of their portfolio during a market drawdown, they not only lock in otherwise-temporary losses, but they also prevent their assets from fully participating in the market recovery and future gains.
To quantify this damage, we first find the difference between your portfolio’s ending and starting values, and then either add back spending or subtract withdrawals to adjust. What remains is considered “bear market damage.” For example, if you start with $100, spend $50, and end with $40, then the bear market damage is $10 ($100 - $40 - $50 = $10).
How can you avoid this?
Using our Liquidity. Longevity. Legacy. (3L) framework, you can build out a Liquidity strategy that allows you to fund your spending needs without locking in otherwise-temporary losses. Let’s take a look at what would happen to your portfolio using a fully funded Liquidity strategy.
Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
How would leaving your portfolio alone affect it under the worst historical circ*mstances?
Your portfolio’s trough value would remain at . When the market fully recovers in , your portfolio would also fully recover to . Bear markets are painful, but when you don’t spend out of your portfolio during one, you don’t lock in any otherwise-temporary losses. As a result, you don’t incur any bear market damage.
What do we mean by “bear market damage”?
When investors are forced to sell out of their portfolios during a market drawdown, they not only lock in otherwise-temporary losses, but they also prevent their assets from fully participating in the market recovery and future gains.
To quantify this damage, we first find the difference between your portfolio’s ending and starting values, and then either add back spending or subtract withdrawals to adjust. What remains is considered “bear market damage.” For example, if you start with $100, spend $50, and end with $40, then the bear market damage is $10 ($100 - $40 - $50 = $10).
Contact your advisor today
Congratulations, it appears that you are already protecting your spending needs from volatility. If you would like to find ways to take advantage of market drawdowns, or if you would like to make sure you’re on track to meet your long-term goals, discuss the Liquidity. Longevity. Legacy. (3L) framework with your advisor today.
Start a conversation
The value of investments may fall as well as rise and you may not get back the amount originally invested.
Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
How would protecting your spending needs change your portfolio under the worst historical circ*mstances?
Your portfolio’s trough value would increase to , higher than the without using the 3L framework. In , you would have , which is more than the without using the 3L framework. By building a Liquidity strategy ahead of time, you would be able to fund your of withdrawals while incurring bear market damage of versus without using the 3L framework.
What else can you do to reduce bear market damage?
If you can afford to reduce spending or deploy excess cash during bear markets, it is possible for you to dramatically reduce bear market damage. Before you do this, make sure that you have enough resources to get you through the full bear market period without having to compromise on maintaining your family’s lifestyle. This is the key to limiting bear market damage, and it’s something you should review and discuss in depth with your advisor.
Contact your advisor today
To learn more about how the 3L framework can help you maintain your lifestyle during periods of volatility while also remaining keenly focused on growing wealth for your long-term objectives, discuss this—and other ways to prepare your portfolio for bear markets—with your advisor today.
Start a conversation
The value of investments may fall as well as rise and you may not get back the amount originally invested.
Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
