Skip to main content

Financial Advisors and Retirement Planners for Attorneys and Couples

What You Need To Know About Recessions And Bear Markets—And How We Can Help

As global markets continue their roller coaster ride due to fears surrounding the coronavirus, our most recent bull market officially turned into a bear market. But what does that mean? And are we on the verge of another recession like the one we had in 2008?


In light of all these concerns, today we’ll share what you need to know about recessions and bear markets. If you are worried about your portfolio, we understand and we’re here to help. Feel free to contact our office to get answers to your specific questions. 

What Is A Bear Market?

A bear market happens when an overall market benchmark, such as the S&P 500, dips by 20% or more from its most recent high. (1) This is often accompanied by negative investor sentiment and more selling than buying.

What Is A Recession? 

A recession is defined as two consecutive quarters of economic decline (emphasis on the word economic). They’re measured using factors such as the employment rate, gross domestic product, bond yield curves, and other factors independent of the stock market. (2)


Economists declare recessions retroactively. For example, the Great Recession wasn’t confirmed until November 2008—11 months after it started. (3)

Bear Markets Vs. Recessions: How Are They Related?

A bear market relates to the stock market. A recession relates to the economy. Contrary to popular belief, the stock market is not the economy. What drives the stock market is investor emotions—which, as we all know, can be fickle. As humans, we have a tendency to be overly optimistic or pessimistic at times. 


Recessions are different. Tangible factors determine the state of our economy. There’s no emotion involved. Which begs the question: Why do people correlate recessions and bear markets? 


If you look back on history, recessions and bear markets have usually occurred around the same time. Of the last 11 S&P 500 bear markets we’ve had since 1957, 63.6% came after a recession. (4) The two go hand in hand, but they’re not the same.

What Should Investors Do At a Time Like This?

What you’ll probably hear from most advisors and financial experts is that there is nothing you can do. Most will tell you that the best thing to do as a long-term investor is to find an optimal portfolio that balances your comfortable level of risk and return. While that approach can be effective and is often better than reacting emotionally and abruptly, bear markets like this reveal the power of tactical investment management. 


Whereas most advisors recommend a static allocation of stocks, bonds and other asset classes in a portfolio, a tactical approach attempts to take advantage of swings in the market by reducing exposure early on to limit the damage done by a bear market. While this sounds good in theory, it can be very difficult to achieve and is often too psychologically challenging for most investors to engage in. 

How We Employ Tactical Investment Management

We use a tactical approach to manage investments. The reason we believe in this approach is that our primary goal for our clients is risk management—especially our clients who are in retirement. Given the difficulty of tactical management, we rely on trading models that are based on specific quantitative criteria to determine where to invest and how to adapt to changing market conditions. 


One model that we use is “Protective Asset Allocation” – an approach developed by Wouter Keller and JW Keuning and published in their paper entitled “PAA: A Simple Momentum-based Alternative to Term Deposits." (5)


This model reallocates on the last day of each month and uses a quantitative, rules-based algorithm to determine how much to invest in stocks, bonds and other asset classes. According to Keller and Keuning’s research, this approach significantly outperformed the S&P 500 historically with much less risk. Here’s a summary of their findings which you can find in their paper: (5)


Dec 1970-Dec 2015

Average Annual Return

Maximum Drawdown




S&P 500



If you were following Keller and Keuning’s algorithm, here’s how you would have been allocated over the past few months:




16.7% Emerging Markets (EEM)

16.7% Gold (GLD)

16.7% Small Cap Equities (IWM)

16.7% Nasdaq 100 (QQQ)

16.7% S&P 500 (SPY)

16.7% Europe Equities (VGK)

13.9% Gold (GLD)

16.7% Intermediate US Treasuries (IEF)

13.9% US Corp. Bonds (LQD)

13.9% Nasdaq 100 (QQQ)

13.9% S&P 500 (SPY)

13.9% Long Term US Treasuries (TLT)

13.9% US Real Estate (VGK)

100% US Intermediate Treasuries (IEF)

By shifting partially away from equities towards bonds at the end of January and shifting completely to bonds at the end of February, this strategy was able to avoid much of the recent market carnage. Employing this model would have resulted in a year-to-date return of -1.7% as of 3/12/2020 market close, whereas the S&P 500’s return during that period was -23.2%.  (6)

However, there are downsides to a strategy like this. It’s great when the work well, however there is always the risk that a strategy like this will put you on the wrong side of the market and result in significant underperformance. We call this whipsaw risk. From our perspective, we’d rather accept this risk than accept this risk of simply sitting idly by during a massive sell-off like we just had. 

Speak With Your Advisor

Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party during times like this. Human nature causes us all to act out of emotion when our accounts go down. As an independent firm, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that are not driven by emotion.

We’re Here For Your Friends And Family

If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes simply speaking with a financial advisor may help investors feel more confident and less concerned with the most recent market activity.


Dislcaimer: For educational and illustrative purposes only. Not investment advice. Not a recommendation to buy or sell securities. Investing involves risk, including the risk of loss of principal. Past performance does not guarantee future results. Hypothetical or simulated performance is not indicative of future results. Unless specifically noted otherwise, all return examples provided are based on hypothetical or simulated investing. We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown. Results are hypothetical, are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Data is unaudited, for informational purposes only and has been prepared from third party advisors and sources believed to be reliable, but no representations or warranties are made as to its accuracy or completeness and are hereby disclaimed. Tactical asset allocation strategies and other strategies do not ensure a profit and do not protect against losses. There are risks associated with any investment approach. There are distinct risks associated with tactical strategies and short term tactical allocations which can result in more concentration toward certain asset classes, including the risk of being on the wrong side of a tactical overweight position, thus resulting in a drag on overall performance or loss of capital. Tactical investment strategies may increase your exposure to investment risks.









Check the background of this financial professional on FINRA's BrokerCheck
Check the background of this financial professional on FINRA's BrokerCheck