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Putting Market Declines in Perspective

By Kate Warne

Man comparing stocks in newspaper and tablet

When stock prices begin falling dramatically, it can appear that your only option is to sell to limit losses. But we disagree – if you are a long-term investor, the difference between success and failure may be determined by your actions during a stock market decline.

In fact, long-term investors will likely experience numerous market declines through the years. Consider the following table:

Declines in the Dow Jones Industrial Average

Dip 5% or more
Correction 10% or more
Bear 20% or more
Number of declines
393
125
32
Declines
3.4 per year
About 1 every year
About 1 every 3.5 years

Source: Ned Davis Research, 1/2/1900-12/31/2017. Past performance is not a guarantee of future results. The Dow Jones industrial Average is unmanaged and is not meant to depict an actual investment. Copyright © 2017 Ned Davis Research, Inc. All rights reserved. Further distribution prohibited without prior permission.

The next time the market has a hiccup, take a deep breath and remember this advice:

  • Market declines are normal, frequent and not a reason to sell quality investments.
  • Market declines begin and end without warning.
  • Market declines provide an opportunity to buy quality investments at a lower price.*
  • Market declines return investments to their rightful owners – those who understand why they own what they own. Market declines can test the nerves of even the most patient investors. If you own a diversified mix of quality investments, resist the temptation to sell or make changes based on short-term events.

Important Information:

*Investing in stocks involves risk. You may receive more or less than your original investment when you sell your shares.

More Resources:

Why Your Returns Shouldn't Match the Market

Here’s why you should compare your investment performance to the return you need, not the return of an index.

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