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When stock prices drop by 20% or more from their recent highs, we enter what’s called a bear market. This can happen for any number of reasons — from a financial crisis (like the housing market collapse of 2008) to a group of fearful investors overreacting to a piece of bad economic news. Fear can sometimes keep a bear market going much longer than the thing that actually caused it in the first place.

Volatility is fairly common in a bear market — stocks can go up and down at a dizzying rate. In this environment, investors are typically more worried than usual about losing money and thus are afraid to take on risk.


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