When markets are bearish (losing value or not gaining significantly), many ask, “Is a rebound in sight?”

In the last quarter of 2008, the TSX dropped over 40% to 7,725. Nevertheless, rallies have since occurred with some remarkable signs of a recovery nearing. Some of the steepest gains in 75 years have since occurred, as the TSX advanced 20% just seven days later to 9,271.

Similarly, the Dow advanced 16.9%, while the Standard & Poor's 500 index rose 19.1%. It was the first time the Dow rose for five consecutive sessions since July 2007, and the biggest five-session percentage gain since Aug. 8, 1932. For the S&P 500, it was the first five-day string of gains since July 2007, and the largest five-day percentage gain since March 16, 1933.

Examine the following graph to see how bull markets reassert themselves over time.

Know that history repeats itself

You may remember the bear market of 1987. The market quickly lost value in only a few days. Investors missed a chance to sell, and in the long run—a blessing in disguise—they had an opportunity to hold on and watch their stocks' and/or funds' unit values increase again. The current bear market is much more intimidating than 1987's experience, as it has continued to unwind over nearly two years.

Don't mess with mama bear

If there is a warning of a hurricane, you don't pitch your tent near the beach. With the stock market, you don't always know when the bear is coming, especially when there are unforeseen causes such as the subprime lending fiasco. Your portfolio may be down by 10, 20, or 30% before you are aware there is a bear in your campsite. But we all know the market is cyclic, and both the smart investor who is a well-studied and cautious risk taker and the uneducated new investor alike must face the results of the current bear market head on. What will help you in that situation?

Buy investments when the market is down

Change your thinking from hopelessness to opportunity-seeking among bargain-priced investments. This is how wealth is created: by changing one's viewpoint and finding the silver lining in every investment cloud—in this case, by buying stocks of many companies held by investment funds currently priced at a bargain. Make this bear market work for you. Remember, it paves the way to the next bull market when rising prices may take your investments higher and higher in value.

Re-examine expectations

We've been through a lot of market upheaval. Be cautious not to expect double-digit returns. Rather, wait for growth through a period of recovery. If you haven't sold out of fear, you still own the investment. It may take some time. Some parts of the portfolio may recover before others. If you need income, access withdrawals from money market funds or bank savings first. If you have no liquid investments or savings, and you don't need income immediately, your best bet is to wait for recovery.

Use dollar-cost averaging

Dollar-cost averaging (DCA) involves buying fund units at regular intervals, investing the same amount of money each time. Thus, you buy more fund units when the value is lower, and fewer when it's higher. DCA is probably the single smartest new money investment strategy to use during a long-term bear market. If you are not fully familiar with the benefits of the concept, we'll gladly illustrate it for you.