How Professionals Think about Market Downturns
Stock markets bounce up and down, but over time they have a strong track record of success.
Want proof? The Dow Jones industrial average, one of the oldest measures of the health of stock markets, has gained more than 1,650 percent in the last 100 years, despite 18 recessions and frequent market corrections.
“Market corrections are a normal part of the investment landscape,” says Jeff Kravetz, regional investment director with U.S. Bank Private Wealth Management.
“A correction in equity markets is marked by a 10 percent or more drop in the level of a stock market index. Corrections are usually short-lived, anywhere from a few weeks to a few months. Catalysts for market corrections include valuation concerns, economic worries and external factors such as geopolitical events,” Kravetz says.
Market corrections can be unsettling, but over the long term they can be healthy for investors, according to a 2017 report in The Wall Street Journal, “A Correction Now Might Not Be So Bad, Some Investors Say.” Pullbacks tamp down speculation, provide opportunities for investors to look for stock bargains, and, importantly, deflate irrational exuberance that can undermine their investment goals.
Wise investors expect market dips. They know their investment portfolios will not have above average returns every year. Instead, they focus on whether their investments are moving toward specific goals on schedule.
Each investor has their own time horizon and goals for saving, and you should review those when making your investment decisions.