Over the past few weeks, the financial media have obsessed over market corrections and bear markets. But disciplined, long-term investors know something they don’t: Market corrections aren’t necessarily a bad thing.
In technical terms, a market correction means a 10% (or greater) drop from the most recent high. That seems like a big deal unless you understand that all this movement feeds the returns we’ve come to expect from investing in stocks. In other words, to realize a benefit from markets going up, at some point, they need to go down.
Now, let’s look at bear markets. If we see a 20% (or greater) drop from a most recent high, and it lasts two months or longer, we call that a bear market. Since the end of World War II, the S&P 500 experienced 14 bear markets. On average, they lasted 14.5 months and the peak to trough decline averaged about 30%.
In other words, we feel that these episodes have proven to be nothing more than temporary interruptions from the overall upward trend.
By the Numbers: The History of Bear Markets
Market selloffs can distract even the most experienced investors. Nobody enjoys seeing their retirement account take a 30% hit. Here are three tips to help you stay focused on your financial goals during the next correction:
Stick to Your Plan – At Strathmore Capital, we believe a well-designed financial plan takes into account bull markets, bear markets, and everything in-between. We craft your asset allocation to help you reach your financial goals, regardless of the short-term volatility in the markets.
Remember This Time Isn’t Different – Don’t buy into the media’s obsession with the next market selloff. Remember 2008 and all the doomsday stories of the time? The S&P 500 has quadrupled since the trough of 2009. We believe that, like all corrections and bear markets before, this too shall pass.
Take Advantage of the Sale – Treat these episodes as an opportunity to add to your retirement accounts at reduced prices.