“WHAT GOES UP …” We all know how that sentence ends. Recently, the stock market has pulled back, and while no one can predict exactly how deep the decline will be, which stocks will suffer most, or how long it will last, one thing is certain: corrections are inevitable. Attempting to time the market is extremely difficult, and history shows that patience tends to pay off for long-term investors.
Over extended periods, equities have generally rewarded investors who stay the course. The Standard & Poor’s 500 index has experienced numerous modest pullbacks—declines of 5 to 9.99 percent—that occur more often than many expect but rarely turn into prolonged downturns. Since World War II, the S&P 500 recorded 56 such pullbacks, with an average drop of 7 percent. On average, those declines lasted about one month, and the market typically recovered those losses in roughly 45 days.
Larger drops of 10 percent or more have happened as well—22 times since World War II—with an average decline of 13.8 percent. These corrections tend to take longer to recover from; historically the average recovery time has been about 264 days. While that can feel like a long stretch for investors watching account values, in the context of a multi-decade investment horizon it is generally a temporary disruption rather than a permanent setback.
Each market correction stems from specific underlying causes. For example, factors contributing to volatility in recent years have included trade tensions, slowing global growth, and rising interest rates as the Federal Reserve tightened policy. The critical question for investors is whether the market can absorb and move beyond those challenges, as it has after many previous setbacks.
Managing emotions during market declines is easier said than done, but keeping a disciplined approach is vital. Align your investments with your personal risk tolerance and your timeline. If you are risk-averse, avoid chasing high-flying stocks that promise big rewards but carry substantial downside risk. If your investment horizon is short, favor more conservative holdings that are less exposed to large swings in value.
Market pullbacks also provide a useful prompt to review and rebalance your portfolio on a regular basis. Rebalancing—ideally at least annually—helps ensure your asset allocation still reflects your objectives and risk profile. By selling portions of assets that have grown beyond target allocations and buying assets that have lagged, rebalancing can help maintain the intended risk-return balance and put you in a better position when markets recover.
In summary, declines and corrections are part of investing. History suggests that, while they can be uncomfortable, they are usually temporary. Staying focused on your investment plan, matching your strategy to your risk tolerance and time horizon, and rebalancing periodically are practical steps that help you navigate volatility and remain positioned for long-term growth.