Bear markets are abstract until you're in one. When you have a $5 million portfolio, the numbers get concrete in a way that can feel disorienting — even for people who know, intellectually, that this is a normal part of investing.
A 30% decline on a $5 million portfolio is $1.5 million on paper. A 40% decline — consistent with what happened in 2008 and 2009 — puts you at $3 million. Those aren't hypothetical numbers. They've happened. They'll happen again in some form. And the families who come through bear markets well aren't the ones who were surprised by that reality — they're the ones who had already thought through it before markets started falling.
The Historical Reality of Drawdowns
Every significant bear market in modern history has eventually recovered. That's not a guarantee about the future, but it is a consistent pattern across more than a century of data — including the Great Depression, the dot-com crash, 2008, and the COVID selloff in 2020. The investors who stayed diversified and invested through those periods saw their portfolios recover and ultimately reach new highs. The ones who sold at or near the bottom did not.
The challenge is that staying invested through a 30% or 40% decline is emotionally very difficult, particularly in retirement when you're drawing income from the same portfolio that's falling. That's why the structure of a retirement portfolio — how income is generated, where liquidity comes from, and how the plan is built to weather volatility — matters as much as the long-term return assumption.
For context on how historical bear markets have actually played out and what staying the course has meant in practice, this look at what happened the last time markets hit all-time highs before a recession is worth reading before the next one arrives.
How Income Holds Up When Markets Don't
For retirees drawing from a $5 million portfolio, the bear market question isn't just about paper losses — it's about cash flow. How do you fund your lifestyle without locking in losses by selling equities at the wrong time?
This is where having a cash reserve and a structured withdrawal strategy matters more than almost any investment decision. If you have one to two years of spending needs covered by cash and short-duration bonds, you can wait out the equity portion of the portfolio without being forced to sell. Dividends and bond income continue to arrive regardless of where equity prices are. The families who handle this best are the ones who thought through the income structure before the bear market started — not during it.
Sequence of returns risk is the specific mechanism at work here, and it's one of the most underappreciated threats to retirement portfolios. This piece on sequence-of-returns risk explains exactly why the timing of a bear market matters so much more than the average return — and why two retirees with identical portfolios can end up with very different outcomes depending on when the downturn hits.
Rebalancing as Discipline
A bear market is, by definition, a time when equities become cheaper relative to bonds and cash. For an investor with a target allocation — say, 60% stocks and 40% bonds — a significant equity decline means the portfolio has drifted below that target. Rebalancing back means buying equities when they're cheaper, which is mathematically correct and emotionally very difficult.
The investors who follow a disciplined rebalancing process tend to do better over full market cycles than those who don't — not because rebalancing is magic, but because it enforces buying low rather than panic-selling into the decline. Having this process agreed upon in advance, as part of a written investment policy, removes at least some of the emotional friction when the moment actually arrives.
Tax-Loss Harvesting: The One Genuine Silver Lining
A falling market creates an opportunity that doesn't exist during normal conditions: the ability to sell positions sitting at a loss, realize those losses for tax purposes, and immediately reinvest in a similar but not identical holding to maintain market exposure. This is tax-loss harvesting, and for a $5 million taxable portfolio, a significant bear market can generate six-figure tax losses that carry forward to offset future gains.
This is one of the few areas where a bear market creates real, tangible value — but only if someone is actively managing the portfolio with tax awareness during the decline, not waiting until it's over. For a deeper look at how this strategy works and when it makes sense, this overview of tax-loss harvesting covers the mechanics clearly.
The Behavioral Mistakes That Cost the Most
The empirical data on investor behavior during bear markets is humbling. Average investors consistently underperform the funds they're invested in because they tend to buy after markets rise and sell after they fall — exactly the opposite of what produces good long-term outcomes.
The most expensive decisions during a bear market tend to be: moving to cash at or near the bottom, concentrating into "safe" assets that miss the recovery, making major allocation changes based on headlines rather than financial plans, and spending more time consuming financial news than is useful. None of these feel like mistakes in the moment. They feel like prudent responses to a frightening situation. That's what makes them so consistently costly.
One of the genuine values of a strong advisory relationship is behavioral coaching — having someone who keeps you from making decisions you'll regret when markets are in free fall. This isn't a soft benefit. It's one of the most consistently documented sources of value in wealth management, and it requires having an advisor who already knows your plan, your income needs, and your risk tolerance before the bear market starts. This piece on protecting retirement from unexpected risks covers the behavioral dimension alongside the financial ones in more depth.
What a $5 Million Portfolio Is Designed to Survive
It's worth saying clearly: a properly structured $5 million portfolio is designed to withstand significant bear markets. That's built into the planning assumptions. Historical drawdowns of 30% to 40% are not tail risks — they're normal events in a long investing lifetime, and a well-constructed retirement portfolio accounts for them.
The question isn't whether your portfolio will decline in a bear market. It will. The question is whether your income structure, your liquidity plan, and your behavioral discipline will hold — and whether the decisions most likely to cause permanent damage have been addressed before they become necessary.
For families at or approaching the $5 million level, making sure those pieces are actually in place is one of the most important conversations to have before the next bear market, not during it. This piece on how much income a $5M portfolio can generate in retirement addresses the income side of that planning directly.
If you'd like to talk through whether your current structure is built to weather that kind of volatility, we'd welcome the conversation.
The best time to prepare a portfolio for a bear market is before one arrives. We work with families throughout the St. Louis area to build retirement income and investment structures that hold up under real-world conditions — including the ones nobody is predicting right now.
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John Wahl is a CFP® and ChFC®, co-founder of One Bridge Wealth Management, and was named to the Forbes 2025 Best-In-State Next-Gen Wealth Advisors list. 2025 Forbes Top Next-Gen Wealth Advisors, created by SHOOK Research. Presented in Aug 2025; based on 03/31/25 data. Advisors pay a fee to hold out marketing materials . Not indicative of advisor’s future performance. Your experience may vary.One Bridge is a fee-based independent wealth advisory practice serving high-net-worth families in the St. Louis area. One Bridge Wealth Management acts as a fiduciary when managing assets. This content is for informational purposes only and does not constitute personalized tax or investment advice. Please consult a qualified tax professional regarding your specific situation.