Is a Market Correction Common?

Every time the market takes a dip, there’s that little voice in the back of your head that thinks “What if this time is different?”  Spoiler Alert… It usually isn’t.  Sure, different scenarios arise but market corrections are incredibly common.  How common?  Let’s take a look. 

Take a look at this graphic from a Charles Schwab study.  It does not include 2020, which saw a significant and swift correction, but needless to say 2020 was a horse of a different color.  Even with the uniqueness of 2020, the market came back from it’s low and finished the year higher than before the correction.  Back to the graphic though, the focus is 2000-2019.

Out of the 20 years, 11 of them had an intra-year correction of 10% or greater.  Also, 2 years were incredibly close to 10%, but for argument’s sake, let’s draw a line in the sand at 10%.  That’s over half the time (55%) that we’ve seen a 10% correction.  Something to note, 6 of those 11 times the return for the year ended up being positive even with the correction during the year.

According to a Fidelity Investments, since 1920, the S&P Index on average has had a 5% pullback three times per year, a 10% pullback once every 16 months, and a 20% correction (considered a Bear Market) once every seven years. The corrections last on average for 43 days. 

So what does that mean for you?

It means that if you pay too much attention to the corrections you might drive yourself nuts.  Understandably, it’s hard to see your balances go down, so don’t consume yourself with red numbers.  Instead, focus on your plan that you put in place.  Hopefully, when you started investing it was with your goals, risk tolerance and time horizon at the forefront of the discussion.  If that’s the case then you should be prepared to handle this type of fluctuation, because again, it’s normal! If you are unsure that your current strategy isn’t in line with goals, tolerance, and horizon it may be time for another visit.  Give us a call or schedule a meeting today.

Content in the material is for general information only and not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

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