In the next episode of Market Minute, Benchmark Financial’s Dan Segal discusses market corrections and how they affect our portfolios and mental well being.
A market correction, as defined by Investopedia, “is a decline of 10% or more in the price of a security from its most recent peak. Corrections can happen to individual assets, like an individual stock or bond, or to an index measuring a group of assets.” Corrections actually more than most people realize. Since 1980, the Unites States has averaged about one correction per year. In fact, there were 37 corrections through 2018. How do these market corrections affect your portfolio?
Of the 37 corrections we just referenced, ten of them led to a bear market, which signifies economic downturns. The others remained or led to bull markets, representing economic growth and stability. The speed of the correction has the biggest impact on your portfolio and your mental well-being. Of course, the longer the correction takes, the more volatile the markets are, which can lead to more stress and uncertainty for your assets.
Generally, corrections last between three and four months. Recently, we’ve seen the two fastest market corrections in history. In February of this year, because of the onset of the Coronavirus pandemic, the correction took only six days! However, this led to panic as the markets spiraled down 30-40% from their highs. This became known as the “corona correction.”
Just this September, we’ve seen the fastest correction, as the NASDAQ grew over 10% in four days. Again, this has heightened the fear and panic in investors. Is this a trend, or the new normal. Mr. Segal thinks this may be the new normal.
Thanks to technology, the markets react much faster in today’s society. Further, commission-free trading has grown exponentially over the last several years. Day traders are back in full force making “bets” as opposed to educated investment choices. Lastly, the availability of information in today’s age will cause this trend to turn into the new normal. Global news can be found almost the instant it happens in today’s climate thanks to Facebook and Twitter.
Should you worry? Probably not. Corrections are necessary even that take place in a healthy market, leading to a new basis in growth. Panic and helplessness is inevitable for just about everyone. But, there’s always a bottom, which will lead to a rebound. Don’t fret the correction!
You can subscribe to the Market Minute podcast on SoundCloud or find it on your preferred services. We want to thank Mr. Segal for the insightful information he provides. Of course, we want to thank you for listening as well. Stay tuned for the next episode!