{"id":8750,"date":"2018-05-11T12:39:57","date_gmt":"2018-05-11T19:39:57","guid":{"rendered":"http:\/\/canary.kcprod.info/blog\/?p=8750"},"modified":"2022-01-11T17:12:26","modified_gmt":"2022-01-12T01:12:26","slug":"stock-market-corrections-not-as-scary-as-you-think","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/stock-market-corrections-not-as-scary-as-you-think\/","title":{"rendered":"Stock Market Corrections: Not As Scary As You Think"},"content":{"rendered":"

For individual investors, 2017 was a dream. However, 2018 has been a different story. After a record setting start to the year, the tides turned quickly on the unprecedented market run. During a short 13 day window from late January and early February the Dow and S&P 500 tumbled into official correction territory, marking the first correction investors had witnessed in two years. The result? More investor fear (as measured by the CBOE Volatility Index) in almost a decade.<\/p>\n

Just as we have seen during previous market corrections, many individual investors sell when the market declines out of fear it will never come back. However, the opposite is actually true. Not only will the market come back, but it will do so a lot sooner than you might think. While some experts are predicting there are more corrections ahead, the reality is we can\u2019t predict the future. But we can certainly use the past to help inform how we think about market corrections. So in this post we\u2019ll present data on how market corrections work so you can come in off the sidelines and keep investing in your future.<\/p>\n

You Won\u2019t Be Waiting Long<\/strong><\/h3>\n

Because the market was on a tear, investors have been sensitive to any downward trends. So when the latest stock market correction — defined as a peak-to-trough decline of at least 10% — occurred on February 8, 2018, it sent shockwaves. The result has been fear and uncertainty, and many investors pulling the money out of the market or keeping their money in savings while they wait it out. But just how long should this last?<\/p>\n

Since the current correction is still in progress, we\u2019ll look at data through 2016, which is the last market correction on record. As you can see from the chart below, over the past 50 years there have been 16 market corrections and 11 bear markets (defined as a peak-to-trough decline of at least 20%). For the purpose of this analysis we rounded up declines to determine corrections and bear markets:<\/p>\n

\"\"<\/p>\n

Source: Wealthfront<\/h5>\n

The table below displays the size of each correction and the amount of time it took the market to recover, or the time it took to return to the price achieved at the peak:<\/p>\n

\"\"<\/p>\n

Source: Wealthfront<\/h5>\n

As you can see the mean time to recovery was only 112 days, which isn\u2019t that long of a time to exercise patience when you\u2019re investing for the long-term. Interestingly, it took on average around the same amount of time to recover as it did to decline. Yet numerous research organizations, most notably DALBAR, have found that individual investors consistently run for the exits whenever the market drops, which on average costs them 4% per year<\/strong>.<\/p>\n

Bearing the Bear<\/strong><\/h3>\n

Unfortunately bear markets take much longer to recover. But the good news is they do <\/em>recover — you just have to have more patience versus corrections, which historically have taken about the same amount of time to recover as they did to create their maximum losses. The mean time to recovery for bear markets is 702 days, which is nearly twice as long as it took to reach a trough. But keep in mind the average was highly influenced by the six years it took to recover from the bear market in the 1970s.<\/p>\n

\"\"<\/p>\n

Source: Wealthfront<\/h5>\n

Your Superpower: Staying the Course<\/strong><\/h3>\n

If you plan on saving over the long-term even a bear market shouldn\u2019t stop you from consistently adding to your investment account. In fact, investing in a bear market can actually increase<\/em> the value of your holdings at retirement because, in effect, you get to buy at a discount all along the way. To put it another way, if an investor started investing on January 1, 1965 and endured all of the corrections and bear markets over the next 50+ years they would have seen a compounded return of 6.7%, far in excess of the compounded inflation rate of 3.6%. But human nature is tough to overcome, so while ignoring market corrections and bear markets and staying the course is the right thing to do, it doesn\u2019t necessarily feel that way when markets are volatile. So our advice: use data to guide your decisions, and remember: slow and steady wins the race.<\/p>\n","protected":false},"excerpt":{"rendered":"

For individual investors, 2017 was a dream. However, 2018 has been a different story. After a record setting start to the year, the tides turned quickly on the unprecedented market run. During a short 13 day window from late January and early February the Dow and S&P 500 tumbled into official correction territory, marking the […]<\/p>\n","protected":false},"author":87,"featured_media":7630,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1315,1282],"tags":[2048,1487,2049,1299,1847],"coauthors":[668],"class_list":["post-8750","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-insights","category-investing","tag-bear-markets","tag-expertise","tag-market-corrections","tag-passive-investing","tag-sp-500"],"acf":[],"yoast_head":"\nMarket Corrections Aren't as Scary as You Think | Wealthfront<\/title>\n<meta name=\"description\" content=\"When it comes to market corrections, the reality is we can\u2019t predict the future. 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