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.


Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Rancho Bernardo Financial Planner