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What's important to take away from these declines is that the market is ever dynamic.When it came to the corrections -- which averaged 14% declines -- recovery took about four months to push the S&P average back to pre-correction levels. And there's always more to the story since the market may hit another correction or go into a bull mode."History is a great guide, but it is never gospel," writes Stovall, "and averages only hint at the whole picture."Taking a look at rebounds is also informative. In 17 corrections, since the end of World War II, 15 posted additional gains after reaching breakeven points.You can also never take these market retreats out of context. Recessions and inflation are rarely good for stocks. The "stagflation" that combined inflation with almost no economic growth was the bane of the 1970s. Even when interest rates are relatively low -- as they have been for more than 20 years -- that doesn't stop massive speculation (dot-com and housing bubbles) or greedy bankers (we can't forget 2008).With history always in the rearview mirror, how do we avoid getting burned by the next bear?The first rule is one that so many ignore: Invest in the stock market money you can afford to lose.Are you in or near retirement? Are you building a college savings fund that you will tap soon? Would a 10% correction hurt you? Would a 20% hit cripple you? Keep in mind that at certain ages, your earning power drops so you won't be able to save and invest your way back into another sweet spot. Knowing the long-term risk of the market always begs this key question: Could you handle a major decline right before you retire or start paying tuition bills? If you can't, then cash, bonds, and inflation-protected securities should be a major holding in your portfolio.Then there's the ultimate question of humility. Will you know exactly when the next bear will begin and end? Most people have no idea and few, if any, professionals guess right on this either. If you don't have the gift of prophecy, then go with your worst fears. Invest based on what you can't afford to lose rather than what you hope to gain. That's the safest bet. John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.New to investing? E*Trade can help. Click here to watch a series of brief educational videos like "New to Online Investing," "The Basics of Stock Screening," "Options for Beginners," and more.
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