This month, we chose a chart that clearly illustrates the frequency of market corrections. We expect volatility in the stock portfolio, but what does that actually look like?
Performance data from 1950 to the present identify some trends:
- 10% corrections happen around once a year
- We experience 15% corrections on average every two years.
- More severe corrections of 20% happen about every four years.
- While 30% corrections occur every 11 years.
- So, major corrections of 50% have occurred only twice in the last century: 1929 and, as most of you remember, 2008.
So, it’s important to note that these corrections are impossible to predict; they usually begin and end without warning. Note that these statistics are for portfolios that are all in equity.
The Key Takeaway
When fluctuations in equity markets are understood to be normal, you decrease the chances of making emotional decisions in the face of a drawdown. More often than not, these drops present opportunities to buy and are not the time to sell.
On behalf of TWM Group, thank you for watching our Chart of the Month. See you next time.
