As the markets continue their bumpy course, you may hear the news discussing corrections. But what exactly is a correction?
When the stock market declines by 10% from a recent peak, it’s considered a market correction. For context, since WWII the average correction for the S&P 500 was about a 13% decline and lasted for roughly 4 months.
That said, if the market continues to slump and eventually falls by -20% from a peak, then it’s called a Bear Market. More recent Bear Markets had an average loss of -30% and took around 2 years to recover.
It can be tempting to wait out market volatility, but the problem is it’s incredibly hard to time the market. For long-term investors, it’s about being patient and remembering that market volatility is completely normal. There has been volatility in the past, and there will be volatility in the future. In fact, for the truly long-term investor, market fluctuations may even be considered opportunities to buy while the market is down — this is when stocks might be on sale.
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