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Frequency of Market Corrections – Test Your Knowledge

by Jim Freeman, CFP® on 6/8/2012

Most people do not realize how frequent stock market corrections actually occur. Before you read any further guess how often 5% corrections have occurred over the last 110 years. Now make the same guess for 10% corrections and 20% corrections before I give you the answers below.

5% Market Corrections

Question: How often on average has the stock market experienced 5% corrections over the last 110 years from 1900 – 2010?

Answer: 3 times per year!

10% Market Corrections

Question: How often on average has the stock market experienced 10% corrections over the last 110 years from 1900 – 2010?

Answer: Once per year!

20% Market Corrections

Question: How often on average has the stock market experienced 20% corrections over the last 110 years from 1900 – 2010?

Answer: Once every 3.5 years!

As you can see market corrections occur on a regular basis and are far more frequent than most people realize. They have always been a normal part of long-term equity investing and always will be. There is no reason to fear these market fluctuations if you are a long-term investor, have a diversified portfolio and a discipline rebalancing strategy.

Source: Capital Research and Management Company. Period: 1900-2010.

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Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.