So This is How Markets Work

It may sting, especially considering the stellar annual returns of the past few years, but this is all completely normal from a historical perspective.

Going back to 1928, there have been more than 90 occasions in which the S&P 500 has declined by 10%, or more, from its recent high. That’s basically once every year. Even bigger declines aren’t all that rare, either, when you stretch your time horizon out further than recent memory…

While the reason for each decline may differ, market pullbacks are part of the game. Based on history, here’s how often you could expect drawdowns of increasing severity…

• Down 10% every 11–12 months;
• Down 20% roughly every four years; and
• Down 30% approximately every 10 years.

Obviously, even bigger declines can take a buzzsaw to our portfolios, as well, seeing as how two 40%+ drawdowns have taken place since the turn of the millennium.

In my opinion, this all goes to show the importance of a long-term mindset when investing in equity markets. Historically, recoveries haven’t transpired as quickly as what we witnessed following the March 2020 sell-off. Time in the market tends to heal most wounds. Give yourself some wiggle room, and adjust accordingly, as your time-horizon shrinks or expands.

To investing for the long-haul.