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“What, me worry?” — Alfred E. Neuman
What should worry me more—inflation or market declines? Both reduce the value of our savings, but they behave very differently. Inflation tends to work slowly and quietly. Market declines, by contrast, often happen quickly and visibly.
Consider several bear markets—defined as declines of 20% or more in the S&P 500.
| Bear Market | Market Decline | Time to Bottom | Time to Recover |
| 1973–74 Oil Crisis | -48% | 21 months | ~7 years |
| 1987 Crash | -34% | 3 months | ~2 years |
| 2000–02 Dot-com Bust | -49% | 30 months | ~7 years |
| 2008 Financial Crisis | -57% | 17 months | ~4 years |
| 2020 COVID Crash | -34% | 1 month | ~5 months |
| 2022 Inflation Bear Market | -25% | 9 months | ~2 years |
Market declines are dramatic. A drop of 20% to 50% makes headlines and captures attention. I feel those losses immediately.
Inflation rarely produces the same kind of head spinning headlines. Instead, inflation gradually erodes purchasing power. Inflation over long periods has often fallen somewhere between 2% and 4%. For this example, let’s use 3%.
At 3% inflation, purchasing power declines roughly as follows:
| Years | Purchasing Power Remaining |
| 10 years | ~74% |
| 20 years | ~55% |
| 30 years | ~41% |
Being invested in businesses—through stocks or stock funds—has historically helped investors keep up with or outpace inflation over long periods, though the path is rarely smooth.
Inflation tends to be slow but persistent. Market declines tend to be sharp but temporary.
Both are simply part of the investing journey.
Some investors maintain a portion of their portfolio in cash as “dry powder,” available if markets decline sharply. How much to hold varies widely. Some hold very little. Others hold more. At times, even well-known investors have accumulated significant cash reserves.
Which should worry investors more?
Research assistance for historical market data was provided with the help of an AI research assistant.
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