Sharp market drops can unnerve even the most seasoned investors, but a look back over the past 40 years shows that declines are a relatively routine occurrence. A market correction of 10% or more has occurred about once a year.
Bearish headlines, troubling events and disappointing economic news can fuel uncertainty. Rather than panicking when declines occur, focus on your long-term investment goals and avoid making quick decisions. Maintaining a diversified portfolio can help reduce the effects of volatility.
Market Corrections Are a Relatively Routine Occurrence Despite a market correction of 10% occurring about once a year over the past four decades, the Standard & Poor's 500 Composite Index recorded a positive return 75% of the time.
Price return for 2011 was 0.0%
Source: Rimes. S&P 500 annual returns, as represented in the bar chart, do not include dividends. Intrayear drops refer to the largest decline in each calendar year. Total number of positive years and average intrayear drops are for the 40 years ended 12/31/16. Average frequency of declines assumes 50% recovery of lost value. The market index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index. S&P source: S&P Dow Jones Indices LLC.
While there have been significant setbacks in each of the last 40 calendar years, the S&P 500 recorded a positive return in 30 of those years, or 75% of the time. However, it is important to remember that past results are not predictive of results in future periods.
Investors with the fortitude to ride out tough market conditions have often been rewarded. In contrast, investors who sold near the bottom of a decline often missed some of the market’s best days while sitting on the sidelines, as turnarounds often happen suddenly and can be significant.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted results of approximately 500 widely held common stocks.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.