BLOG: We Were Overdue For A Correction
Over the past few days, the market has taken a sharp downturn and the media has taken a gloom and doom approach (as they usually do). Allow me to offer some perspective.
In the 12-month period before the market began falling last week, the S&P 500 had risen approximately 24%. The historical average annual return for the S&P 500 is approximately 10%[1], so the year-long rally we were experiencing was clearly unsustainable. A correction was overdue and necessary. Add in that it’s a Presidential election year, and some volatility was to be expected.
As I’ve mentioned before, market corrections are common. According to a recent report by Fidelity Investments, “Since 1920, the S&P 500 Index has—on average—recorded a 5% pullback three times a year, a 10% correction once every 16 months, and a 20% plunge every seven years. Corrections have lasted an average of 43 days.”[2]
Those of you who have been with me for a long time know I generally suggest two ways to handle a market correction: add to your investments or do nothing.
Adding to your portfolio can be a great way to purchase more shares of your investments while they’re “on sale.” If you believe, like I do, that the market will grow over the long term, adding to your positions while they’re priced lower could enhance your long-term returns. Now is the time to do that.
The second option, doing nothing, is also effective. If, as the information above shows, the average market correction lasts 43 days, doing nothing and keeping an eye on the long-term is certainly a good reaction. As the saying goes, this too shall pass.
Either way, over-reacting to short-term swings of the market is not advised. It’s important to have a solid plan in place and keep at it through all types of markets. My advice, instead, is to concentrate on enjoying your Summer.
As always, I’m here to help. If you have any questions or wish to discuss this further, please don’t hesitate to contact me.
Regards,
[1] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp#:~:text=The%20index%20has%20returned%20a,will%20not%20enjoy%20such%20returns.
[2] https://www.fidelity.com/learning-center/trading-investing/markets-sectors/stock-market-corrections
The opinions voiced in this material are for general information only and are 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.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing includes risks, including fluctuating prices and loss of principal.