Today the Dow Jones Industrial Average dropped 1,032 points. As an investor, it is normal to feel nervous about volatility, especially when we don’t know what tomorrow will bring. Uncertainty and market losses are difficult to accept, but it’s important to keep the numbers in perspective.
A market correction is defined as a peak-to-trough drop of 10% or more, a dip is a drop between 5% – 10%, and anything less is considered a pause. Since 1900, declines in the DJIA is somewhat a regular event. Here’s the data to consider:
1900 – December 2015
|Type of Decline||Average Frequency1||Average Length2|
|-5% or more||About 3x a year||47 days|
|-10% or more||About once a year||115 days|
|-15% or more||About once every 2 years||216 days|
|-20% or more||About once every 3 ½ years||338 days|
Source: Capital Research and Management Company
1Assumes 50% recovery rate of lost value.
2Measures market high to market low.
Fleeing the market during a downturn means you are not in a position to take advantage of the potential for growth experienced when the next upswing occurs. It is easy to leave the market during a decline, but we know from investors like Warren Buffett (who have stayed invested for the long-term) that a down market often presents us with a buying opportunity. History has shown us that it is wiser not to panic and flee, but instead stick to our long-term plans and the sound investment principles we’ve used in building your portfolio.
It is important for us to consider the reasons behind the recent market swings and so we are reading, listening, and watching commentary on it right now. Our goal is to keep you informed and, just as importantly, to keep your investment allocations prudent as we maintain a long-term perspective in order to help you pursue your goals.
While the media and the market may be telling us a lot has changed, let’s remember that your personal needs and goals probably haven’t. If you need to connect sooner than our next communication, please give us a call at 815-526-3312 or if it is after hours and an emergency then you may call my cell number at 815-353-2342. We appreciate your patience during this time of evaluation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No one can consistently predict the right time to get it or out of the market. Investing involves risk including loss of principal.