Frequency of Market Corrections – Test Your Knowledge
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.