What caught my eye this week.

Like many people, my immediate reaction to this week’s budget was a sense of relief.

Not just on a personal level. Rather, given the litany of potential clangers leaked beforehand – and Rachel Reeves’ form with her hike in employer NICs last year – I was pleased to see nothing too destabilising for the economy.

I don’t even mind that the revenue-raising piece of the budget was backloaded, with the extended freeze on income tax thresholds.

Yes, as I wrote on Wednesday there is a case for being bolder upfront. This might have brought gilt yields – and hence borrowing costs – down faster.

And personally I’d have preferred to see a small rise in basic rate income tax than endless fiddling with pensions, salaries, allowances, ISAs, and all the rest – with the triple-underlined proviso that this should have meant none of the animal spirit-suffocating speculation we saw beforehand, too.

But I can see the other side.

Economic growth is already feeble. Upfront tax hikes could have made things worse, even if gilt yields did dip.

At least by freezing income tax thresholds we just boil the frog some more – meanwhile hoping things can heat up in the rest of the kitchen.

Making ISAs grate again

As the week moved on though, my relief has given way to frustration.

Reading various pundits’ takes on the Budget, it all seemed a lot of fuss about nothing in terms of most of the measures.

Just compare what we saw announced on Wednesday with the cacophony of briefings, counter-briefings, and speculation we endured since summer.

Was it worth coshing the economy back into its box – by delaying investments, hiring, home moving, or just splashing out – for this?

Then there is the measure that’s caused the most fuss about these parts: the move to restrict the annual cash ISA allowance to £12,000.

A pointless priority

On the positive side of the ledger, the one thing that economists, businesses, the media, and even the IMF agreed before the Budget was that we needed to jolt Britain out of its doom loop by faffing about with a popular savings product that people actually understand and use.

Only kidding. Nobody said that. Everyone called for capital investments, or growth initiatives, or spending cuts. Ho hum.

When I wrote back in summer that instead of grasping the enormity of the challenge facing aging, entitled post-Brexit Britain, we’d been reduced to squabbling over what we’ve got, this is exactly what I meant.

Big picture, restricting cash ISA savings will achieve nothing.

For individuals it will mean confusion. Platforms will have to spend millions implementing extra checks on what you’re investing where. And the authorities will need to spend millions to make sure you follow the rules.

Many people thought they’d never touch cash ISAs. Alas I thought they might, which was why I kept running the rumours over the past 18 months.

That’s because I’ve realised we’re watching more a theatre of governance than its reality in Western politics today.

And Britain’s equivalent of, say, extrajudicially blowing up boats in the Caribbean is messing around with the tax shelters of Little England.

Do this, do that, and hope the electorate is distracted. (To be clear I blame the voters for most of this, in part driven by the ills of social media.)

Kerching!

Some savvy Monevator readers laughed in the face of a cash ISA cap.

“I’ll just hold money market funds or gilts,” they said.

But I warned in my piece that there would likely be rules against that sort of thing. And sure enough, we’ve had official word there will be measures to stop you sneakily rigging up your shares ISA as a cash ISA proxy.

My best guess is the platforms will not enable you to buy anything cash-like in a shares ISA unless it has more than five years (or similar) to run. You’ll probably be allowed to hold what you’ve already got. That’s how it worked last time, from memory.

But the HMRC note talks about a ‘charge’. So maybe they’ll even apply some kind of levy to existing or ongoing cash-like holdings?

If you’re thinking “surely not, what a faff” then you’ve missed out the extra word “pointless”.

I’ve been writing about ISAs for 20 years and I guarantee this change is just going to confuse people.

It might make a handful more people invest a few more quid at the margin, but there must be better ways to achieve the same result.

It’s worse than they’re saying

Of course the right-wing press is up in arms about the Budget. They would have been whatever it contained.

The attack vector du jour is that Reeves lied beforehand about the state of the UK economy, when she hinted earlier of potential income tax rises.

The truth is Reeves and other politicians are if anything not gloomy enough.

Let me remind you of this recent graph:

Britain is in a state. Whether Reeves muddled around the edges of her self-imposed ‘headroom’ is neither here nor there.

Of course I’m inclined to give this government more slack than, say, The Telegraph does because I’m able to admit that 90% of this problem is not of Labour’s making. It inherited a crock.

To be clear, that blame percentage is going down as they add their blunders (the NIC hike) or dithering (pre-Budget speculation) to the mix.

But as it is, I’m prepared, say, to actually read and digest the swathes of research that shows the hit to the UK economy from Brexit is costing the UK state at least £60bn a year in lost tax revenues.

That sum that dwarfs the tax rises that Labour has forced onto a weak economy that you’d rather we were investing in to stimulate.

But I know… (half a dozen of) you don’t want to hear me rant about Brexit again.

Luckily I don’t have to.

A Brexiteer recants

This week saw Ryan Bourne – one of the so-called ‘Economists for Brexit’, a crew plentiful enough to squeeze into an Uber to the Leave victory party – concede that Brexit has been an economic disaster.

In a piece entitled – pinch me, I’m dreaming – We Brexiteers Must Acknowledge The Costs of Leaving Europe in The Times [paywalled], Bourne admits:

The microeconomic, firm-level data is crystal clear that Brexit has had a significant, depressive impact.

The authors [of recent research] use the Bank of England’s decision-maker panel — about 7,000 firms surveyed — to show that the more EU-exposed a company was, the more likely it cut investment and slowed hiring after the referendum.

By 2023, average business investment was 12 per cent lower than otherwise. Productivity within firms was 3 to 4 per cent weaker.

Roughly half of firms listed Brexit as a top source of uncertainty for years after the vote. Yes, remainer foot-dragging in parliament exacerbated this uncertainty. But wherever you ascribe blame, managers devoted hours each week to planning for new post-Brexit customs arrangements, regulation and precautionary stockpiles. This displacement activity weakened innovation, delayed investment and distracted managers from core business.

Such evidence cannot be dismissed as Project Fear. It is data.

Hallelujah.

Some have scorned Bourne’s nine-year overdue revelation. They suggest that if he wants to remain a respected chap at the Cato Institute and widely-quoted in the media, he must, you know, show a grasp of economics.

Hence they see a desperate recantation to save his credibility and career.

I’m less harsh. It’s true I’m just a humble blogger who said this would happen with Brexit and it’s happened, yet I still await my fellowship or chairman role at any leading economic bodies.

But as for Bourne, I say let people change their minds.

Who among us didn’t do something silly in their youth? The first album I ever bought was The Return of Bruno by Bruce Willis. You won’t see that on my musical C.V.

If every Leaver admitted Brexit was economic folly then we’d be down to the minority of sovereignty diehards (a respectable position), nativists (not my bag but fine), or worse (you decide).

Farage would not be electable, and we could accelerate the inevitable rejoining of the EU. That would by no means solve all or even most of our problems, but it would be good for tens of billions of economic “Hooya!” upfront.

Most leading Brexiteers won’t recant though, let alone everyday Leave voters who can wave their hands and talk about how Remainers (who were literally ejected from the Tory party) ruined Brexit (which was actually implemented by Boris Johnson, the leading figure of the Leave campaign).

Fantasy footballs

But this is the make believe world we’re in today. Too many people don’t think about what they believe. And they often don’t believe what they say.

(And of course if you believe you see someone saying something, you have to check that it wasn’t AI…)

To return to Reeves and Labour, does anything underline this phoney state more than their definition of ‘working people’ that doesn’t include the workers who generate the bulk of the income tax receipts, let alone GDP?

My taxes are going up again – not least with the dividend hike – so I guess I was deluding myself that I’ve been working. I suppose it’s all just been some neoliberal play acting on my part, and my computer is made of cheese.

The resurgent blogger 3652 Days went big on this in a great post this week.

Check out his glossary of political terms, which begins:

• Balanced Approach – More tax. Balanced chiefly on your wallet.
• Brexit’s Impact on the Economy – See: “global factors”, “challenging headwinds”, and “please stop asking”.
• Broad Shoulders – Anyone who has ever received a tax bill that induces mild nausea.
• Challenging Headwinds – Meteorological phenomenon occurring whenever GDP numbers flatline. Typically used in place of the more accurate “we did something extremely stupid and would quite like you to stop bringing it up”.
• Civic Duty – Paying more tax with a serene facial expression.

There’s much more. Enjoy, and have a great weekend.

[continue reading…]

After we all spent months anxiously awaiting the start of Rachel Reeves’ Budget 2025 speech, it was the Office for Budgetary Responsibility (OBR) that broke first.

Like a twitchy sprinter in the 100m who jumps the starter’s gun, the OBR went early and published its assessment of the budget – complete with most if not all of the contents of Reeves’ speech – more than half an hour before she got up to speak in the House of Commons.

Of course it was probably a computer glitch rather than sheer excitement on the OBR’s part. But where is the colour in that?

Either way, the unprecedented leak caused market-moving mayhem such as this for homebuilders:

Source: Google Finance

And this for UK gilts:

Source: Google Finance

The chancellor stood up just after 12.30pm. So you can see from the graphs when the details leaked – and the bungee jump that assets made on the news.

It’s curious to ponder why, say, builders moved like this.

One possibility is some naive trading algorithms responded to news of taxes on property, without taking into account other offsetting factors in the budget.

More likely though (or as well) is that these moves reflect trading entities caught offside by not expecting any news until 12.30pm, and then new money piling in on the leak overwhelming those prior strategic positions.

But I’m just speculating and I’m looking forward to reading more about it.

Hot takes on the budget 2025 announcements

Anyway, emboldened by the OBR, I’ll also not wait. Below are my first takes on the major points in the budget, unsullied by the opinions of others. (Well, not counting the last three month’s worth of pundit pontifications…)

I won’t go much into the economic and fiscal upgrades or downgrades.

But I will note that where the budget’s impact is disinflationary (such as reducing household energy bills) that should dampen inflation and gilt yields.

In turn that should bring down gilt yields – and by extension government borrowing costs. A good thing!

Timed to imperfection

In fact, this budget is arguably a missed opportunity to make deeper upfront moves to shore up the public finances, and so curb borrowing costs sooner.

“No one likes us and we don’t care,” sing Millwall fans. Given nobody currently likes Labour either, perhaps we might have seen bolder cuts and hikes.

Being tough now could have injected more life into the UK economy – not least through lower mortgage rates. That could even have seen Labour in a better position ahead of the next election, rather than seems likely with this dispiriting status quo.

Politically, however, both Reeves’ backbenchers and the electorate-at-large seem to have little patience for either welfare cuts or explicitly higher taxes.

Hence this stealthy muddle. And also a gilt market left to guesstimate how much of the back-ended higher revenues will actually materialise.

Why meeee?

Let’s also acknowledge it’s hard to cheer a tax rise that affects oneself. Or to be too viscerally concerned about benefit cuts for others.

Monevator readers are – like me – drawn from a certain slice of the population. Like most of you I don’t love the trajectory of public spending. I’d also prefer a focus on growth to get us out of the debt trap.

But realistically nothing in this budget will move the dial like the economic damage from Brexit, nor Reeves’ foolish decision to hike employers’ national insurance contributions in the last budget.

This budget is mostly just fiddling at the sides. It’s driven by politics and the kind of spreadsheet maths familiar to anyone who has ever tried to make a holiday rental property add up.

So from that perspective, here are my first takes on the most Monevator-adjacent bits. I look forward to reading yours below!

Note: bullet point summaries are from the budget document where possible.

Tax thresholds frozen for three more years until 2031

• The government is maintaining personal tax thresholds and the National Insurance contributions (NICs) secondary threshold from 2028 until 2031. And also the Plan 2 student loan repayment threshold from 2027-28 until 2029-30.

The showpiece tax generator. Reeves says is worth an extra £7.6bn a year by 2030 from income taxes alone. With NICs some £8.6bn by 2030-2031.

There are pros and cons, besides its tax-raising and political efficacy.

The biggest plus is it effectively postpones the pain versus a straight tax hike. Given the economy remains lacklustre at the moment, that’s no small thing.

For me the big negative is it’s stealthy and confusing. It also feels somehow more anti-aspirational than, say, increasing the basic rate of tax by 2p – even if it’s ultimately less costly to most taxpayers.

It’s also a strangely unprogressive move for a Labour government.

Millions more unspectacular earners will be paying higher-rate taxes by 2030. Indeed according to Hargreaves Lansdown over six million more people are paying income tax compared to 2021 when the freeze was first introduced. It says that’s worth an extra £89bn in income taxes a year.

Broadening the taxpaying base doesn’t seem the worst thing in the world to me. We’ve all seen those graphs showing how most income tax is paid by the very highest earners.

Still, I’d rather see a comprehensive revamp and simplification of the whole tax regime.

Cash ISA allowance curtailed to £12,000 a year

• From 6 April 2027 the annual ISA cash limit will be set at £12,000, within the overall annual ISA limit of £20,000.
• Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2031.
• Savers over the age of 65 will continue to be able to save up to £20,000 in a cash ISA each year.

At least there’s no silly Dad’s Army ISA. But this is still a needless complication that won’t do much to boost investment.

I haven’t seen the small print – and there will be plenty – as to how cash-like you can get in your non-cash ISA. If you can hold Money Market Funds or short-term gilts, then for Monevator readers this will be a nothing burger.

Years ago though there were rules against that sort of thing in stocks and shares ISAs, so we’ll have to wait and see. Nothing happening until 2027.

Interestingly, shares in wealth managers rose today. Optimistically you might think that’s because they’ll see more money coming from banks’ cash ISAs.

But maybe it just reflects how average punters will be yet more confused about ISAs, and so more likely to hand their money over to St James Place.

Anyway, as someone who has been explaining ISAs here and offline for nearly 20 years, I know this move will confuse people.

Talking of complications, there is talk of a new ‘simpler’ ISA to support home buyers. It will replace the Lifetime ISA. More to come in early 2026.

The High Value Council Tax Surcharge (aka Mansion tax)

• The government is introducing a High Value Council Tax Surcharge (HVCTS) in England for residential properties worth £2 million or more, from April 2028.
• This charge will be based on updated valuations to identify properties above the threshold. It will be in addition to existing Council Tax.
• New charges start at £2,500 per year, rising to £7,500 per year for properties valued above £5 million.
• It will be levied on property owners rather than occupiers. 

I suppose it could have been worse. The government says fewer than 1% of properties will affected.

Otherwise, after many months of speculation about such a measure – which has already slowed the property market – we’re all familiar with the arguments.

The main pro, if you believe in this kind of thing, is it taxes wealth that is growing disproportionately at the high end versus the general population.

The cons are multiple. The cost and faff of valuation, the cliff edge introduced and likely shenanigans around it, the difference between asset-rich and having the cashflow to pay a surcharge, and the arbitrariness of hitting property.

On at least the latter point – I’ll live.

The tax system is riddled with cliff edges and arbitrary measures. I spent 20 years as a renter who invested my money instead – with a limited annual tax-free sheltering capacity – while friends made six or even seven-figure sums tax-free from their homes. Meanwhile I paid capital gains tax on relatively modest unsheltered share gains.

Also, UK homes are in limited supply and, as just stated, gains on your own home have hitherto been tax-free. So there’s an argument UK property is a special case worthy of a wealth tax. This in addition to the practical fact that a house can’t go anywhere!

On the other hand, people will rightly fear this could be the thin end of the edge, as we saw with dividend taxes (see below).

Once the medicine has been swallowed, who’s to say a chancellor won’t eye up homes worth over £1m next? In much of London that doesn’t get you anything beyond a 900 sq ft Victorian terrace or a nice flat. Hardly a mansion.

At least we won’t have issue of prices shooting up above the £2m threshold for a while. The property market has been going backwards in real terms in the South East for over a decade. This is hardly going to spark a revival.

Salary sacrifice curbed to £2,000 limit

• The government is to limit the value of salary sacrificed pension contributions that can receive employee and employer NICs relief to £2,000 per year from 6 April 2029

I liked Finumus‘ initial take: “Now I know my retirement date.”

As a site that promotes self-reliant saving and investment, there’s no way Monevator can applaud this move.

Something immediately attractive – an income today – was being traded for future security – a pension.

Isn’t that what the government wants to encourage? Remember there are other restrictions on pension contributions and the like, to curb any alleged excesses.

Thus it looks like a short-term tax grab aimed at relatively wealthy workers. Politically understandable but yet another example of moving the goalposts and fostering a fundamentally unstable and hard-to-track savings regime.

I do not commend it to the house.

Dividend tax, property, and savings tax hiked

The government is:

• Creating separate tax rates for property income. From April 2027, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.
• Increasing the ordinary and upper rates of tax on dividend income by 2 percentage points from April 2026. There is no change to the dividend additional rate.
• Increasing the tax rate on savings income by 2 percentage points across all bands from April 2027.

I don’t see anything to like about the dividend and savings rate increases. But I would say that, wouldn’t I? The only mitigation is the £20,000 ISA allowance remains intact. So for a lot of people most of their savings should be sheltered.

Still, the way dividend taxes were hiked years ago and an initial and relatively low dividend allowance slowly whittled away has been insidious. I used to write a lot about this, as I knew of people with large unsheltered portfolios who had eschewed using ISAs and SIPPS when they had a chance.

That’s the trouble with rules changing under your feet. But I suppose the bulk of that generation has passed away by now.

Another issue with dividend taxes is it effects those operating through limited companies. Again, little love from the mainstream for such people, but it all reflects a climate in which entrepreneurialism or running a small business is less attractive than it was a couple of decades ago. Is that what we want?

As for property, there’s only so much coshing the rental sector can take.

Two-child benefit cap scrapped

• The two-child limit in the Universal Credit Child Element will be removed from April 2026.

Clearly one for the Labour party faithful. But I do find it hard to get worked up about this. In fact on balance I think I probably support it.

Yes, I understand the argument that, effectively, middle-class strivers are paying for other people’s feckless decision to have more kids. I linked to a Telegraph article last week that directly correlated lower incomes with larger family sizes via a striking graph.

But let’s be honest, middle-class families could have more children if they wanted to. That’s provided they were prepared to live more like a family on benefits, in a crappier part of town, in insecure or council-owned property, and with a lower standard of living. Perhaps not for the marginal edge cases, but certainly for most Telegraph readers.

No, they don’t have more kids because they don’t want them nor the lifestyle impact of paying for bringing up larger broods in the manner they’ve become accustomed to. I totally understand that too – I have no children, and it’s no accident – but let’s not pretend the decision turns on an extra £17.25 a week.

And perhaps it is true that throwing more money at poorer large families could deliver a return for society, if it means better educational outcomes and more productive workers 18 years hence.

One thing is certain – the only person who doesn’t have a voice in all this is the third or fourth kid in that large poor family.

If extra benefit helps the helpless achieve better life outcomes, then isn’t that what a welfare state should be for?

Fiddling while Reading burns

Whether these relatively modest moves warranted the three months of will-she, won’t-she debate we lived through is – ahem – debatable.

We’ve had prime ministers that were in and and office in much less time than we’ve kicked all this around.

On that point though, some good news! We’ll only have one ‘fiscal event’ trigger a year going forward.

From Reuters:

Britain’s Office for Budget Responsibility will check if the government is meeting its budget rules once a year instead of twice, it said on Wednesday, according to its outlook unexpectedly published ahead of finance minister Rachel Reeves delivering her budget.

The OBR will continue to publish two sets of forecasts annually to accompany the government’s spring and autumn fiscal statements.

But, they will now only look once per year at whether the finance minister is on course to meet her targets for the public finances.

The International Monetary Fund had recommended that the OBR assess the government’s progress towards its fiscal rules only once a year to reduce speculation about what measures might be needed to stay on track.

You might argue this amounts to less oversight on the government.

But watching the forecasts oscillate about and, again, the endless speculation about what might be done in response has not been edifying. Nor, I’d argue, has it been good for businesses, households, or the economy writ large.

Hence I’m all for this change.

And there’s more…

For the rest of the budget details, check out summaries from:

• The BBC
• Sky News
• The Guardian
• This Is Money

You want to know the nerdiest details about capital spending allowances for widget makers or whatnot?

• Read the official budget document via the Gov.UK website

I look forward to your groans and hurrahs (only joking) in the comments. Please let’s keep the discussion as constructive as possible. 🙂

How long does it usually take equities to recover from a bear market?

I don’t just mean how long does it take for a bear market to end. Bears can be officially over in a matter of months.

But how long does it take for us to recover our losses? To get back in the black? In real, inflation-adjusted terms. 

Sadly, that’s a much longer slog…

Investing returns sidebar – All returns quoted are inflation-adjusted total returns (including dividends). Fees are not included. The bear recovery column shows you when the stock market fully restored its losses in real terms. Total duration measures the period from the start of the bear market until recovery.

World equities: bear market recovery times 1970-2025 (GBP returns)

Data from MSCI. November 2025. Note: MSCI World monthly returns begin in 1970. The December 1969 bear market actually began before that – see the UK and US bear market recovery tables below.

To summarise:

• Average bear market loss: -38%
• Average bear market recovery time: 6 years, 6 months
• Shortest bear: 1 year, 11 months
• Longest bear: 13 years, 9 months

The real-return figures I’m sharing here are much worse than the nominal ones you’ll see from sources that ignore inflation.

Unfortunately though, the cost of living is real as we’ve seen only too recently.

Inflation-adjusted returns are the ones that put food on the table. So let’s not obscure reality with nominal figures.

That aside, I’m always shocked by the potential depth and severity of really big bear markets.

If you weren’t invested during the Global Financial Crisis (GFC) then you haven’t even experienced an average bear market shock yet.

God knows how awful many of us would feel if the market were to fall by 50%.

So far that’s happened twice in my lifetime. But happily not my investing lifetime.

Smarter than the average bear

Many people seem to believe that they can always ride out a bear because the market will bounce back in a few years.

As the table shows, that could prove a serious miscalculation if you’re gliding towards retirement with a portfolio stuffed full of equities like a jumbo jet carrying too much fuel.

Remember the recovery periods above only get you back where you started.

It’s also worth pondering on that fact that, as I say, since the GFC we’ve enjoyed an exceptionally benign bear-free patch.

Long may that continue, eh?

(Gulp! Should you suddenly feel a desire to dig deeper, I recently refurbished our article on defensive asset allocation.)

UK equities: bear market recovery times 1900-2025 (GBP returns)

Okay, we can’t access World equities data before 1970. So for a longer term picture, let’s turn to the UK and US record of bear attacks:

Data from Before the cult of equity: the British stock market, 1829–1929, (Campbell G, Grossman R, Turner JD, (2021), European Review of Economic History. 25. 10.1093/ereh/heab003.), A Century of UK Economic Trends, and FTSE Russell. November 2025.

Some highlights:

• Average bear market loss: -38%
• Average bear market recovery time: 4 years, 9 months
• Shortest bear: 1 year, 2 months
• Longest bear: 11 years, 9 months

Surprisingly, inking in the period wracked by World Wars and the Great Depression does not make the UK’s bear market recovery stats look any worse than the World index.

That said, my eye is always caught by the UK’s -75% 1972-1974 crash.

Reflecting on that period also reminds me we’ve endured periods of social discontent that makes today’s disharmony look like a primary school nativity play.

Bear country

In some ways, these tables underplay the potential threats to our portfolios.

For one, our tables don’t include the near-bear markets: losses of 15% or more that pockmark the inter-bear periods.

Sub-bear shocks can still be enough to shake someone whose portfolio has galloped ahead in the good times. A few years of worth of wonderful gains can quickly move us from a place where we had little to lose to suddenly having a lot on the line.

In that situation, we may have imperceptibely become less risk tolerant than we thought.

Secondly, sometimes only a few months separates one bear market recovery from the next mauling.

For example there is only a three month respite between the January 1972 recovery and the April 1972 market mutilation. So I personally view that period as one long 15-year bear market rampage. (Perhaps it would be with fees included.)

Similarly, Y2K’s Dotcom Bust and the GFC really amount to a lost decade for UK investors.

Finally, the last of my ‘glass half empty’ / ‘the glass is smashed all over the floor’ points is that the UK stock market has performed pretty well historically.

Yet it’s plausible to imagine a nastier, parallel universe where all equities were ripped up by a Bearzilla disaster on the scale of the Japanese stock market crash.

Incidentally, the December 1989 to September 1990 bear market (in the World equities table) is largely caused by the bursting of the Japanese asset bubble.

US equities: bear market recovery times 1900-2025 (USD returns)

For completion’s sake, here’s the bear market recovery record of the world’s most successful stock market:

Data from Robert Shiller. October 2025.

• Average bear market loss: -37%
• Average bear market recovery time: 5 years, 4 months
• Shortest bear: 1 year, 5 months
• Longest bear: 12 years, 9 months

Again, you could choose to label the benighted sequence from the Great Depression to World War 2 as one giant bear lasting from September 1929 until April 1945.

Which would have meant over 15 years until you broke even. And then you got a whole 12 months off before the 35% plunge commencing April 1946.

What a time to be alive.

Essentially then, US stocks have suffered three lost decades in 125 years.

Yes, the US – the land of the permabulls!

This might seem like scaremongering. But if an investing lifetime lasts 50 to 60 years (accumulation and decumulation phases combined) then many of us are likely to live through the sharp end of at least one such stagnant period.

Investing in the real world

So far we’ve considered raw market data. But in reality, the bear market recovery time we experience will be further drawn out by investment costs.

And on a brighter note, we can improve our results by pound-cost averaging through the downturn, and by diversifying into defensive assets – such as government bonds – ahead of time.

The chart below shows how a larger allocation to high-quality government bonds sped up the recovery from the coronavirus crash versus a pure equities portfolio:

Source: JP Morgan: Guide to the Markets. 31 May 2022. Page 63.

The All-Weather portfolio is another asset allocation approach that can dramatically reduce the severity of a bear market.

Yes, you’ll probably pay for this cushioning in the form of lower long-term returns. (Though that’s never a certainty).

But experiencing shallower swoons makes it easier to stay the course. And it’s far harder to come back from a bear market if you panic sell after a deep plunge, lock in your losses, and then miss the rebound.

So take the right steps to protect your portfolio ahead of time. It’s usually too late once a bear market runs wild.

Take it steady,

The Accumulator