According to an analysis of the S&P 500 by CNBC, since World War II we’ve seen twenty-five market corrections. A correction is defined as a drop of 10 percent or more. The average correction has seen a 13 percent market drop, and on average takes four months from the bottom to recover.
A bear market, on the other hand, is a drop of 20 percent or more in market value. We’ve seen thirteen of those since World War II. The average loss in market value is 30 percent.
And the average duration: a bear market on average lasts thirteen months. That’s how long it takes to go from market top to market bottom. The recovery on average takes twenty-two months. That means from the market bottom it takes roughly two years to get back to the top. Put corrections and bear markets together and we’ve had thirty-seven “bad times” market punches in the mouth in the past seventy-four years.
It’s important to remember that historically, significant drops occur in the market every two years. While we’re invested in the market with the expectation of satisfactory long-term gains, we should keep our expectations low about what happens in the short-term. There will be all kinds of negative news that drives short-term price drops , so tune out the noise and stay focused on your long-term allocation.
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Jonathan Bird, CFP®
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