A Bear Is Not a Bear Is Not a Bear

Over the past 20+ years, the Dow Jones Industrial Average has slid by 20% a handful of times. That means if you had $100 invested before the slide, it was worth $80 at the end. Each bear attacked in different ways, sometimes doing widespread damage and sometimes focusing on a certain industry or security type. Technology stocks and funds were the hardest hit when the Internet bubble burst from 2000 through 2002—while the 2007–2009 bear market was less discriminating, dragging down everything from high-flying growth stocks to commodities to bank-loan funds.

You can't always count on history

On the other hand, despite recent evidence, high-quality bond funds typically escape major trauma in periods of significant stock market weakness. Everything else has been less predictable. Small-company funds held up well during one bear market, and then suffered during the next one. Junk-bond funds have wandered all over the map, posting gains in the early bear markets but collapsing in 1990 as the economy weakened and stumbling again from 2000 to 2002 and 2007 through early 2009. Gold has also been mixed: anyone who came out of the late-1970s bear market believing gold was the place to be on a long-term basis got burned in the early 1980s, when the bear knocked precious metals funds for a 30% loss. In recent years, however, gold provided a haven for investors fearing inflation and geopolitical instability. In the new century, cautious investors have flooded the precious-metals category to mixed results.