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Writer's pictureKyle Rolek, Retirement Planning Specialist

How Often Do Stock Market Corrections Occur?



With the S&P 500 index's recent decline over the last few weeks to the point where it's now making news headlines, I thought I'd send this article with data about historical market corrections to keep things in perspective.


How Often Do Stock Market Corrections Occur?


A stock market correction can be defined as a drop in price from a previous high point.


Since 1928, the S&P 500 index has experienced a correction of 5% or greater in 89 out of 96 years, or about 93% of the time.


Said another way, there's a greater than 9 out of 10 chance the S&P 500 index will fall by 5% of greater at some point in any given year.


Since 1928, the S&P 500 index has experienced a correction of 10% or greater in 61 out of 96 years, or about 64% of the time.


There's a greater than 6 in 10 chance the S&P 500 index will fall by more than 10% at some point in any given year.


As the data above illustrates, market corrections like what's occurred over the last few weeks are very common.


In spite of how frequently corrections have occurred, the S&P 500 index has ended the year positive in 70 out of 95 years since 1928, or about 73% of the time.


And despite all the corrections, the S&P 500 index has produced an average annual return of about 10% per year since 1928, far outpacing the rate of inflation during the same time period.


By having a well-organized, comprehensive plan and sticking with the plan through the inevitable market downturns that occur from time to time, the chance that market corrections harm your long-term financial security can be minimized.


Data Table: S&P 500 Returns and Drawdowns from 1928 - 2022


Investment Planning for Retirement:

The goal of the investment planning process for retirement is to provide you with investment income, when you need it, that lasts for the rest of your life.


To accomplish this, a plan must be designed to protect you against four risks: stock market, inflation, liquidity, and longevity.

1 – The “short-term bucket” – This primarily includes bank accounts. This bucket provides liquidity and protection from stock market fluctuations.

2 – The “middle bucket” – This generally includes money market funds, CDs, and bonds. This bucket is designed to provide some protection from stock market fluctuations, and also a slightly higher expected returns than the short-term bucket.

3 – The “long-term bucket” – This includes quality stock funds. The purpose of this bucket is to provide the growth potential needed to fund a long retirement and address inflation, healthcare costs, and other items that may come up down the road.


The long-term bucket will fluctuate in value and will experience down days, months, quarters, and years from time to time like now.


However, by keeping an appropriate amount in the short-term bucket and middle bucket (the “appropriate amount” is determined primarily by your unique retirement cash flow needs), the risk of having to sell investments in your long-term bucket during market corrections can be minimized, which then enables you to benefit from the strong return periods that typically follow market corrections.


Want To Discuss This Individually?


1 - For clients: Call or email me any time as always.


2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com



This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures

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Article Disclosures

 

Informational Purposes

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

 

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The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

 

Information Obtained from a Third Party Source

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Illustrative Purposes​

The information contained is for illustrative purposes only.

Target Assumptions

Any target assumptions described in the articles are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.

 

If you have any questions regarding our disclosures, please contact us at 267-427-5667 or kyle.rolek@rolekretirement.com

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