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I always like to look at the lessons we can learn from history. Humans don’t change - we’re fickle-minded impatient people and we have been forever. So in this current official bear market, what can history teach us about the future?

First of all - stop panicking. We’re in a bear market, again. This isn’t some life-threatening ordeal. It amazes me how in every bear market, people always put the US up for sale in a heartbeat, but never seem to learn. Sure things are bad. Very bad - a perfect storm is indeed brewing with real estate, oil prices, job losses, etc. But this too, shall pass. The S&P’s peak was October 12 at 14,093 - we’re off over 23% from those highs. That’s a pretty steep drop. It gets me excited to start dumping more money in. Here’s why.

The average decline during the last nine bear markets was 31%. This means that it’s possible, yet unlikely, to fall further down to 9,700. But with that said - most of the drop has already happened, historically speaking. Most, but not all of the bad news is already priced in. Now is the time to start buying up into indexes slowly and methodically. After falling 20% - the last nine bear markets have returned a positive average of 3% within just one month of crossing that negative 20% threshold. And within twelve months, the last nine bear markets have returned an average of 17%.

17% - that is not chump change. This means that if history proves true, and we invest today given that we’ve crossed the 20% threshold, we’ll earn about 17% in the next twelve months. And if we’re no where near the bottom, we still stand to gain perhaps 10% (also not chump change).

History can’t always prove correct, but it’s definitely a good indicator. So far, this bear market has unfolded exactly as the past nine have. On average, the nine crossed the 20% decline point nine months after beginning their decline. We’re right on schedule. The past bear markets lasted, on average, another five months.

Things are pretty bad out there. But let’s get things in perspective. In the 2002 crash, irrational exuberance ruled, which is something we are all protected against today. Contrarily, when we hit 14,000 back in October, industry experts were wondering “how did it get this high?” as opposed to “how much higher?”. The market was selling at a P/E of 35 before the 2002 crash. The P/E was even higher at 40 times earnings in the 1973 crash. Back in October - we were at a mere 19 times earnings. Sure things were overvalued, but not anywhere near historical records. If that’s not enough to convince you: the 1987 crash showed a 23% drop in one single trading day. It took us eight months to do that this time around. The 1970s showed double digit inflation couple with record oil prices. Perhaps today’s 6% inflation is high, but its still manageable.

In 1990, thousands of savings and loans banks failed, and the financial sector went kaput. This caused a 20% drop in about three months. This one resembles 1990 quite closely.

I do think we have quite a bit more to go, but I wouldn’t bet the horse on it. I’d slowly start putting my money back into the market. The lower it goes, the more aggressive I’ll invest. 10,500 will indicate more deposits into my Scottrade account, and at 10,000 (if we ever get there), I’ll probably dump a ton of cash into the markets. It’s easier to hold long-term than to try and time the market.

So everyone relax and let this bear market unravel itself. It’s happened nine times before since 1956. Turn off the TV Chicken Little - we’re not done investing quite yet.

Much of this article is derived from a great piece written by Kiplinger’s.