Market corrections

In the December newsletter I looked at market highs from a historical and practical perspective. As that train keeps rolling and new highs continue to be set in 2017, I want to look at market corrections to give fair treatment to the market ups and downs that come with investing. 

 

A correction is commonly defined as a market reversal of at least 10%. The information below shows declines in a historical context of the Dow Jones Industrial Average (DJIA) according to Capital Research and Management Company. 

 

Decline                         Average Frequency           Average Length       Last Occurrence 

-10% or more               About once a year                   115 days              August 2015 

 

-15% or more               About once every 2 years        215 days             October 2011 

 

-20% or more               About once every 3.5 years     341 days             March 2009 

 

Two points:

 

 1: No doubt the market has had some painful times (for example: the “lost decade” of 2000-2009), yet despite all of them, the market has remained resilient and rewarding to long-term investors. In fact, when I was born the DJIA was around 3,000 and today it’s approaching 21,000. More applicably, when I got my first job at 16 and started saving $25/month into a mutual fund the DJIA was around 8,000.                                           

*Side note: I wish I would have left that money invested but when I graduated from high school I bought a new truck, just one of many financial lessons learned.

 

2. Please don’t confuse this information to be a prediction of where the market is heading in the near future. As always, I believe your best defense is to have a well-diversified investment strategy that is driven by your financial objectives (in other words, assign purpose to your investments and have a disciplined strategy aimed towards that purpose).

 

If you’re not sure that your investment strategy is well diversified and in line with your objectives click here for a 5-minute questionnaire to get started on a free portfolio analysis. Please share this offer with your friends and family as well. 

 

Disclaimer: Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantee against market loss or greater or more consistent returns.

 

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