How Far Will Dow Fall During Next Retraction

[rockthisworld]

The Dow posted a high of just above 28,000. How far will the Dow fall during the next bear market? I just want an idea of what you all think because you all are super smart and I appreciate the advice on here. I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective. As for my prediction based on a lot of articles and videos that at the peak of the next bear market worse case scenario will be about 35% to somewhere around 18200 for the Dow. My ideology for this is that there is a lot of liquidity pumped into the market and the average bear market had about a 32% drop. And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

[z3r0c00l]

The Dow posted a high of just above 28,000. How far will the Dow fall during the next bear market? I just want an idea of what you all think because you all are super smart and I appreciate the advice on here. I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective. As for my prediction based on a lot of articles and videos that at the peak of the next bear market worse case scenario will be about 35% to somewhere around 18200 for the Dow. My ideology for this is that there is a lot of liquidity pumped into the market and the average bear market had about a 32% drop. And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

Unknown and what's more, entirely unknowable. You can look at past recessions and make an average. But I have no confidence in the ability of anyone to predict this. It is entirely likely that stocks will keep going up for years to come without a real pullback at all. What, then, would the purpose of this question have been? If that isn't a fun answer, than I would say expect a drop of anywhere between 10% and 90% over the next 10 years.

[CoastalWinds]

There are a lot of smart people here, and the smartest of them will answer with “I don’t know... and I don’t care. Stay the course with a well thought-out IPS.”

[mptfan]

Nobody knows. Anyone who tells you they know or have a good idea is either 1) ignorant or 2) trying to sell you something, or both.

And by the way, most people on this board do not follow "the Dow" if you are referring to the Dow Jones Industrial Average, since that index only tracks 30 stocks. The S&P 500 index is a better index to track, or better yet the Dow Jones U.S. Total Stock Market Index or the Russell 3000 index.

Also, how do you define "bear market" and "retraction?"

[rockthisworld]

That is true it’s the unknown the scares investors. I do know that all I can control is income and savings rate. And the calm nature to not sell and just hold for 40 years lol. Should I actually rebalance and acquire capital gains in order to go from 100% stocks to maybe 60/40 or 50/50 in anticipation? Or am I better off long term sticking 100% stocks and rebalance later in my 50s and 60s to get slightly more conservative? I can whether a bear market knowing I have time to recover.

[rockthisworld]

Bear market is 20% or greater drop from all time high not rounded and a retraction is I believe 2 straight quarters of negative gdp growth.

[Stinky]

The Dow posted a high of just above 28,000. How far will the Dow fall during the next bear market? I just want an idea of what you all think because you all are super smart and I appreciate the advice on here. I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective. As for my prediction based on a lot of articles and videos that at the peak of the next bear market worse case scenario will be about 35% to somewhere around 18200 for the Dow. My ideology for this is that there is a lot of liquidity pumped into the market and the average bear market had about a 32% drop. And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

Yes there are some really smart people that post on this Forum. But nobody knows what the direction of the stock market is. Over the next year, it could be up 20%, it could be down 20%, or anything in between. Or it might move even more than 20%. Nobody knows.

But the really smart thing that most people on this Forum have done is to have a defined asset allocation plan and strategy.

It sounds like you’re early in your investing career, since you were not invested at all during the 2008-2009 mess. If that’s the case, I would suggest that you put the money into the market that you have right now, and then continue to contribute on a regular basis, maybe in your 401(k) or similar plan.

And then let the market do what it does. If the market goes up, you win, because your assets are up. If the market goes down, you win, because you’re able to buy more shares at a lower price. Either way you win.

Long-term investing is the key. Ignore the short term noise.

[David Jay]

I just want an idea of what you all think because you all are super smart and I appreciate the advice on here.

If this is true, then listen. No, really - listen. Read the comments above (and probably the ones following).

Nobody knows anything about the future. We do the best we can by setting an asset allocation we can live with through thick and thin. Then we stick to it and rebalance into a down market.

And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

Fear of loss is very human, but it is counterproductive.

[mptfan]

Bear market is 20% or greater drop from all time high not rounded....

What are you referring to, what is doing the dropping? If you are referring to the Dow Jones Industrial Average, then my advice is to stop paying attention to that for two reasons... 1) it only tracks 30 stocks and does not represent the entire market, and 2) it is a price index that does not include reinvested dividends paid by the stocks in the market. Yes, I know that the media reports and tracks movements of "the Dow" like it's a sporting event, but I advise you to tune out if you want to learn to be a better investor.

[Shallowpockets]

It is falling as we speak.
S and P was up over 20% for the year. Now we backslide. How far? 2018 chart was not good. Overall returns negative.
Why not lose half again as we have gained this year in December? Last year in December the S and P lost enough to bring it back to April 2018 levels.
There is no boost news on the horizon. The best we can do is hope for little news at all. But that ain't gonna happen.
This is how you only get a prospective 4-5% return historically in the market.

[Stinky]

Should I actually rebalance and acquire capital gains in order to go from 100% stocks to maybe 60/40 or 50/50 in anticipation? Or am I better off long term sticking 100% stocks and rebalance later in my 50s and 60s to get slightly more conservative? I can whether a bear market knowing I have time to recover.

You should define an asset allocation plan and stick to it.

It sounds like you're 100% stocks now. That's aggressive, but not outside the bounds of reason, for a relatively young investor. If that's comfortable for you, knowing that there is volatility in the stock market, stick with it. But if you can't stand the volatility of 100% stocks, then back it off to 90/10, 8020, or 70/30.

Pick an asset allocation that YOU feel comfortable with. Pick one that you won't feel the need to make "more conservative" every time the commentators say "the stock market is crashing!".

You'll have time to make your asset allocation more conservative as you approach retirement. Plenty of time.

[SmileyFace]

Why do you focus on the Dow? Why not total market?

[mbasherp]

I plan for and expect a 50% drop at some point, whether starting this week or decades from now. It has happened before and will likely happen again.

This doesn’t keep me from holding stocks; I merely stress test my portfolio with a 50% haircut in mind. In fact, I’ve gone far enough down the rabbit hole to know that if the market drops 50%, I need to be comfortable staying the course in the midst of ANOTHER 50% decline from there. 75% down would get mighty uncomfortable, to be sure. But I know I am better prepared than most. This is part of how I determine my risk tolerance.

[Triple digit golfer]

Nobody has any idea. It may never again drop lower than it is right now. In fact, it may go up another 40% before it drops significantly.

Anybody who claims to have any idea if, when, and the severity of a pullback either thinks they know and they're wrong, or doesn't know and they're lying.

[JoeRetire]

I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective.

And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

If someone says "It will fall 42.8%" are you going to become unnerved and change your strategy? 51.7? 33.3?

Just stay the course and don't worry.

[carolinaman]

We do not know how much it will fall, or when or for how long. These questions are asked all the time on this forum. The best strategy is to pick an asset allocation that you will stick to when a bear market hits.

[greg24]

You're asking an unanswerable question.

The best thing you can do is have a plan for when a downturn happens.

My plan is to continue buying equity and fixed income in my chosen asset allocation.

[Phineas J. Whoopee]

I'm smart enough to know I don't and can't know.
PJW

[WhiteMaxima]

20-40% drop depend how severe the economy slow down is. I would not 100% equity now and leave 20-40% in bond or cash (60/40 AA) and keep rebalancing.

[jb1]

I’m 29, and I am 100% stocks. If I don’t plan on touching it for years to come I’m gonna just leave it

[jebmke]

if we merge this thread with the kitchen knife thread we can have a "catch the falling knife" thread.

[Bobby206]

I say somewhere between 0% and 100% depending on a lot of factors.

[Chuck5781]

20-40% drop depend how severe the economy slow down is. I would not 100% equity now and leave 20-40% in bond or cash (60/40 AA) and keep rebalancing.

Since you know the amount, could you also tell us the dates of the drop, the bottom, and full recovery?

[MathWizard]

I calculate the value of my portfolio assuming a drop of 1/3 in the stock portion, because I think stocks are overvalued by 50% .
There will eventually be a correction, just don't know when. I tend to expect a drop well before everyone else does. Maybe that is the irrational exuberance phase of a bubble, when the crowd assumed stocks never go down.

We just rebalanced over the weekend, after quite a run-up in the stock portion of our portfolio. If I recall, the portfolio was up 20% YTD with the stocks gaining more than bonds. I'd have never guessed that, so I could've all wet with my estimate.

[mptfan]

I say somewhere between 0% and 100% depending on a lot of factors.

If the Dow drops to zero, your asset allocation will be the least of your worries.

[flyingaway]

Maybe the CAPE10 can tell us something, although many people do not believe it.

[Chrono Triggered]

-26.5489124%.

Source: I know a guy.

[WhiteMaxima]

20-40% drop depend how severe the economy slow down is. I would not 100% equity now and leave 20-40% in bond or cash (60/40 AA) and keep rebalancing.

Since you know the amount, could you also tell us the dates of the drop, the bottom, and full recovery?

I don't know when. But I do know major correction happens in a normal business cycle and a balanced AA will benefit from a major correction. I am not telling to timing the market. I am telling to diversify AA in all asset class. 20-40% number is from the last two business down turn, I am using it as an example.

[H-Town]

The Dow posted a high of just above 28,000. How far will the Dow fall during the next bear market? I just want an idea of what you all think because you all are super smart and I appreciate the advice on here. I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective. As for my prediction based on a lot of articles and videos that at the peak of the next bear market worse case scenario will be about 35% to somewhere around 18200 for the Dow. My ideology for this is that there is a lot of liquidity pumped into the market and the average bear market had about a 32% drop. And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

Forget about statistics and numbers. It only needs to fall far enough to scare investors into sell-off frenzies. It needs to put fear into investors, like it did in 2008/2009.

[peregrino]

According to a table I found online, of the 22 instances in the 20th and early 21st centuries where the Dow fell at least 20%, it fell between 24% and 28% in 7 of them. A four percentage point range capturing about a third of the historical instances seems to me as good a guess as any. So 24%-28% is my guess.

[krb]

The Dow posted a high of just above 28,000. How far will the Dow fall during the next bear market? I just want an idea of what you all think because you all are super smart and I appreciate the advice on here. I invest every few weeks dollar cost average. I am hoping long haul that this strategy will be effective. As for my prediction based on a lot of articles and videos that at the peak of the next bear market worse case scenario will be about 35% to somewhere around 18200 for the Dow. My ideology for this is that there is a lot of liquidity pumped into the market and the average bear market had about a 32% drop. And I fear because I saw how bad 2008/2009 was but I wasn’t investing back then.

Just to be annoying, technically you are not dollar cost averaging. You are putting everything you have in the market, but you only have money every so often so are putting that much in. DCA is, as I understand (and I certainly don't know everything) when you have money sitting in the bank and you put a little in every so often. Most of us instead put everything we have available from our paychecks in as soon as it's available. So it feels like DCA but it's technically different. I called it DCA for like decades before I realized I was using the wrong term.

[tuningfork]

It will fall far enough, and not a penny more.

[mortfree]

(T- (3.14*365/#leap years since last recession) + 1
), where T= Dow peak


Sorry. Futile attempt at humor is my way of dealing with a potential 20-50+% drop.

[Bobby206]

I say somewhere between 0% and 100% depending on a lot of factors.

If the Dow drops to zero, your asset allocation will be the least of your worries.

Yup. That's for sure.

[Bir48die]

This could be one of the oddest questions I've read though I think it was done in good spirit. There are so many factors and very few are measurable. The main one is emotion and once things head south many people forget how stupid it is to liquidate or stop the bleeding. Just get your AA in line with what risk you can handle and forget it. Anyone who is less than 55 shouldn't think about this (unless within 5 year of retirement). Just let it ride. It will come back.

[csmath]

20-40% drop depend how severe the economy slow down is. I would not 100% equity now and leave 20-40% in bond or cash (60/40 AA) and keep rebalancing.

Since you know the amount, could you also tell us the dates of the drop, the bottom, and full recovery?

I don't know when. But I do know major correction happens in a normal business cycle and a balanced AA will benefit from a major correction. I am not telling to timing the market. I am telling to diversify AA in all asset class. 20-40% number is from the last two business down turn, I am using it as an example.

In 2016...

I am 20% cash now. But I DCA small amount in Vanguard everyday. If the market is up 10%, I will be up 8% which is not bad. If market crashed 20% tomorrow, I will be all in again. Long term, I dont thinking market timing will work. It's just my short term play.

VTSAX...
+9.07 inflation adjusted CAGR over the following 6 months
+16.04 inflation adjusted CAGR over the following 12 months

In Feb 2017 you started a thread "Moving 20% into Cash"...

The market did very well during the last 1.5 month (up 5%, translate 40% annually). So I decide to move 20% from equity to cash to lock some of the profit. While I still have 80% in the stock market (no bonds). So if the market is doing well during rest of year, I will still enjoy 80% of the growth (I still believe so). So the 20% cash will sitting there to make me more comfortable just in case.

VTSAX...
+8.06 inflation adjusted CAGR over the following 6 months
+22.67 inflation adjusted CAGR over the following 12 months

In March 2017...

I truely believe the healthcare industry will out perform the general market despite the political pressure on drug price. This is because this industry is directly benefit our healthy living. The downward pressure during last couple of years only create value for this sector. So we wont over pay this sector. I would over weight this sector.

Vanguard Health Care Index Admiral... 0.10% ER
+9.99 inflation adjusted CAGR over the following 6 months
+10.11 inflation adjusted CAGR over the following 12 months
VTSAX... 0.04 ER
+6.39 inflation adjusted CAGR over the following 6 months
+11.22 inflation adjusted CAGR over the following 12 months

Oct 2017

I moved 50% into cash. Would forgo 10% potential gain instead of 20~ 30 % potential loss. Once the music stops, everyone rush out. You know ETFs, index fund, at panic, all will be dumped. I am now sitting down and worry free. I still have 50% there, so if market continous, I will still get 50% of the return. If market crushes, I might get at certain point. I don't see recession in the near term, But I do see a potential sell off anytime soon.

VTSAX...
+4.54 inflation adjusted CAGR over the following 6 months
+15.00 inflation adjusted CAGR over the following 12 months

Feb 2018

The market is over valued even today. A BH should aware of this and be value oriented. This is not market timing.
https://www.cnbc.com/2018/01/23/markets ... -says.html

VTSAX...
+4.54 inflation adjusted CAGR over the following 6 months
-3.71 inflation adjusted CAGR over the following 12 months
+3.55 inflation adjusted CAGR over the following 14 months

Not trying to pick on you and you've given plenty of good advice in the past... but market timing is not one of them.

[nisiprius]

All you can do is to mentally brace for a wide range of possibilities. The stock market is risky and you must tolerate the risk. Wanting accurate predictions of when the stock market will fall, or by how much, is wanting the stock market to be risky for everyone else, but not for you.

This is a statement of what has happened in history over the past 148 years. It's based on data from a reference volume, the Ibbotson SBBI 2015 Class Yearbook, table 13-4. Since 1871...

...there have been 19 declines of 20% or more, or an average of one every 8 years or so.
...there have been 11 declines of 30% or more, or an average of one every 13 years or so.
...there have been 6 declines of 50% or more (including one that was only -49.93%), or an average of one every 25 years or so.

Because of the great variability and unpredictability of the stock market, you shouldn't take these as being accurate predictions for the future. You shouldn't consider them as predictions. Nor should you assume they were roughly evenly spaced; they weren't. For example, 50%-or-more declines only occurred every 25 years on the average, but nevertheless, the crash of 1929 was followed by a -50% decline just seven years later.

Assuming you will be investing for thirty or forty years, though, you should expect to see several -30% declines, and it would not be surprising to bump into one of -50%... nor surprising to luck out and escape ever seeing one that deep.

The best I can answer your question is that if the next decline is less than 20% it will only be called a "correction," so by definition the next "bear market" will involve a decline of 20% or more. Before 2008-9, the standard advice in the forum was always to be prepared for -50%. A lot of people thought that was too pessimistic, but 2008-2009 turned out to be just about -50%. So "be prepared for -50%" is good advice. That's not a prediction that it will be that much, but it would be unwise to plan on not seeing -50%.

That does not mean "we're 'due' for one" or anything like that. Just that it is always a possibility and we always need to be prepared for it.

By the way, despite all the bashing of the Dow Jones Industrial Average (DJIA), stocks are stocks. Even though it's an unscientific and ugly average, it's perfectly good as a rough measurement. During 2008-2009, the DJIA, as tracked by the DIA ETF, fell -50.3%; the S&P 500, -53.6%; and a total market index, as tracked by the VTI ETF, -53.6%. So while people are trying to educate you on the nature of the DJIA and other indexes, for the sort of question you have it doesn't make much difference.

[TallBoy29er]

Far enough that it will have you questioning your strategy. Waste your time worrying about something you can do something about.

[Dottie57]

OP - why is there a focus on Dow? I watch SP500 (500 companies). DJIA has 30.

[whodidntante]

OP - why is there a focus on Dow? I watch SP500 (500 companies). DJIA has 30.

Why is there a focus on the S&P500? I watch the MSCI ACWI Investable Market Index (8,909 companies). S&P500 has 505 (oddly enough).

[Dottie57]

OP - why is there a focus on Dow? I watch SP500 (500 companies). DJIA has 30.

Why is there a focus on the S&P500? I watch the MSCI ACWI Investable Market Index (8,909 companies). S&P500 has 505 (oddly enough).

Fair enough. My point was why focus on 30 companies but I think you know that!

[WildCat48]

My guess is that we see the dow at around 14,000 by the end of next year.

[Monsterflockster]

I’m 29, and I am 100% stocks. If I don’t plan on touching it for years to come I’m gonna just leave it

This. You only lose or gain if you sell.

[Rus In Urbe]

EXCELLENT ADVICE above.
The practiced investor knows that you only gain or lose WHEN YOU SELL.
This knowledge should help mitigate the fear of loss and the greed for gain.
The novice investor reacts to her/his current worth and is not focused on the important factors like diversification or AA.

To the OP:
Since you are relatively new to investing, you will learn a lot by noticing (and being rigorously honest) about what you do when there is a downturn (which is as inevitable as the market going up is inevitable----wait long enough and both happen).

Know thyself.

As an investor, you will come to know how well you deal with GREED and FEAR, and you will see how they interfere with making the kind of wise, long-term decisions you need to make in order to amass wealth.

Keep learning. Keep living below your means and saving all you can. Those things are in your control.

The direction of the market is not.

Good luck.

[MotoTrojan]

Today may be the last day it’s ever as low as it is now.

[whodidntante]

My guess is that we see the dow at around 14,000 by the end of next year.

And then there will be less interest in buying stocks.

[arcticpineapplecorp.]

it will fall until the last speculator is done selling their stocks to investors.

here's the last 11 (historic bear markets) from the Great Depression to the Great Recession (Global Financial Crisis):

http://www.nbcnews.com/id/37740147/ns/b ... r-markets/

the market fell around 20% last year (4th quarter). How'd you do with that one?

this article lists them back to the Panic of 1792 (remember that one?):

https://vocal.media/trader/worst-stock- ... us-history

[Larry2623]

Sorry my crystal ball is in the shop

[CurlyDave]

Bear market is 20% or greater drop from all time high not rounded and a retraction is I believe 2 straight quarters of negative gdp growth.

Depending on which index you want to use and whether you choose interday or intraday highs and lows, the last bear market could have been on Dec 24, 2018, when we got to either a hair below or a hair above a 20% fall.

So, either we are in the very late stages of a bull market waiting for a bear to emerge, or in the very early stages of a bull market with good prospects for a long rung of increases.

It is nice to have clear signals like these. Keep saving as much as you comfortably can and you will ultimately be rewarded.

[MathWizard]

Maybe the CAPE10 can tell us something, although many people do not believe it.

CAPE PE10 is at about 30,

What does that say about valuations?

Does that predict a drop to 20:. a 33% drop?

A drop to 15: a 50% drop?