How long do stock market corrections last?

How long do stock market corrections last?

These are not easy times to be an investor.

Yet it’s important to remember that with investing what seems dire at the time can really be of huge benefit to you months or years down the road. Stock market corrections are not a design flaw. They are healthy and to be celebrated. 

How long do stock market corrections last? 

Read on about how long, and why it doesn’t really matter 🙂

How long do stock market corrections last?

A stock market correction is usually defined as a decline of 10% or more in the value of an index. Stock market corrections are not the same characterization of a bear market or anything else really.

For comparison purposes:

  • “A market dip” is any brief, market decline – that could be down 1%, 2% or more in any given day. 
  • “A market crash” is more than a dip or blimp – this is a sudden market drop of signficant valve. A stock market crash is an abrupt drop in stock prices, usually 10% or more in any single day, which may trigger a prolonged correction or bearish market ahead.
  • “A bear market” is a prolonged, longer decline in market value than a correction – typically characterized by 20% or more downward. While some bear markets have averaged historically about 12-18 months, I should point out that market corrections really have no defined timeline.

A bear market is often an outcome in thinking or rather behaving – a reflection of a major shift in investor sentiment. Deeply rooted, changed investor sentiment that is until it shifts yet again. 

A stock market correction is, in my opinion, like getting whiplash – it happens from a reaction to an immediate event or immediate data. In this context, while it can be painful, you can recover. Painful corrections are largely inconsequential (or at least should be) to you and me as investors. 

Such is the nature of investing.

Why we invest…

I suspect there are many reasons why we invest – and they can be highly individualistic. 

I can certainly think of a few reasons why I invest in the stock market in particular. I’m aligned with Larry Bates for one reason:

“I see the stock market, as a tool, for average people/average investors to be long-term business owners.” – Larry Bates, Beat the Bank.

A second reason for me to invest in the stock market is having just cash is hardly enough. Over long, historical, time horizons – cash savings simply don’t keep up to inflation. Look at things now. While saving, any amount, any time is always great, cash savings simply aren’t sustainable. On the flipside, being a long-term, growing business owner is.

A third and final key reason why I invest in the stock market is one of risk diversification. I would think we all invest for reasons to build wealth/generate returns. Of course, not all assets are created equal.

Will real estate accelerate higher and higher?

Will any cash savings be king in times of higher interest rates?

Will oil and gas companies crush other sector returns in the coming decades?

Ha. I wish I knew!

2012-2021 Asset Class Quilt

Investing, in many sectors, in many countries, can be an effective way to put money into the markets at work in a way that may increase risk but could also enhance returns. Remember:

  • Risk – the chance of producing a higher or lower-than-expected return.
  • Return – what is the amount of money I may earn. 

The amount of risk you carry depends on your appetite – which could be very different than mine. Higher risk often yields higher potential returns.

Only you can decide how much risk you’re willing to take for the potential of higher returns.

What should you do during a market correction?

As little as possible.

If you have a well-thought out, diversified approach to investing, then a market correction of any value is really just noise.

Moderate declines in value can and will happen – for markets as whole, for sectors, or for individual assets.

Market corrections are certainly quite normal when it comes to S&P 500 history. 

In general, you should expect:

  • a market correction at least once every 2 years, of 10% or more
  • a bear market at least every 7 years, where market value is down 20% or more
  • a major market crash at least every decade.  

Stock market corrections, to say the least vary, but they can rhyme: in the last four corrections since the 2008-09 global financial crisis, I read somewhere the average decline in the S&P 500 index was close to 15% lasting over a few months. 

Check out more about corrections and their frequency here.

Standard & Poor's 500 Composite Index (1948-2017)

Bear markets on the other hand are a different beast: the duration is longer and can be more painful.

How long do stock market corrections last summary

Corrections are a normal part of the cycle of markets, and the best thing you (and I) can do during a stock market correction is to stay the course. Stick to your investment plan and don’t let any market panic sway your personal investing decisions.

By the vary name, a stock market correction is generally short-lived so selling assets during in any correction is typically not beneficial.

If you’re saving money like I am, on a regular basis, then a market correction is something to rejoice. You can now get your stocks on sale vs. before. 

Correction times vary and there is no real predictiably how long corrections can or will last in advance. I was inspired to share this post today as yet another reminder that we don’t know what we don’t know – the future is always a very cloudy space. Even with market corrections that lead to a bear market, those are rare and chances are the stock market will be much higher in value later on, over time. History says so.

Instead of worrying about stock market corrections, how long any stock market correction might last, I’m more inclinded to worry about some things within my control and influence:

  1. My sustained savings rate for investing
  2. The ability to remain with my hybrid investing plan of stocks and low-cost ETFs
  3. Keeping some cash to pounce when equity opportunity strikes, and
  4. Avoiding fearmongering market news.

Maybe #4 should be #1 but I’ll leave that debate to you too!

What do you make of any stock market dips or corrections? What plays games on your investing brain?

Related Reading:

How to Beat the TSX index over time.

The Cash Wedge – how to manage market volatility.

How to get through a market crash – and benefit from it.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day - always FREE. Follow me on Twitter @myownadvisor.

14 Responses to "How long do stock market corrections last?"

  1. With price correction comes opportunity. For the value investor, the graham price valuation things are looking better all the time (more downside to come). At the start of the year our plan was to deploy 10K / month. With the market trending down, there is a temptation to deviate from this. It is fun times, wish my understanding of international relations and power politics was better. As this would be helpful knowledge in our present moment. Last 3 years have certainly been very interesting. Global lock downs for a virus, to Europe going kinetic (do we humans ever learn ??). Can’t say I understand any of it.

    Monthly income is growing keeps us happy. Capital amount fluctuates, is fine, though when you see swings greater than what your yearly salary once was, damn.

    David

    Reply
    1. Well said David on the opportunity-side of things. I see it the same way. I hope to invest in stocks/equities for the coming 40 years. Hard to react to something today when 40 years hopefully lies ahead!
      Mark

      Reply
  2. “ What do you make of any stock market dips or corrections?”

    It has made me truly appreciate having set aside cash for such occasions.

    It was uncomfortable to hold cash that’s doing next to nothing when stocks were skyrocketing, but it would be down right painful to have to sell during a correction or worse.

    Reply
    1. Totally Bob. I’ve been happy to deploy a bit of cash now and will have a post next week on what I bought. Not much, mind you, but some is better than none!
      Mark

      Reply
  3. Sure those dividend stocks are shining stars in a dark world of collapsing growth stocks!!! But, don’t write them off, they will bounce back and their valuations would surpass those dividend stocks in the long term. We need them both to grow a healthy portfolio. Don’t despair to see the equity market falling off the cliff. Hopefully, we don’t have to wait too long to see our portfolios growing back.

    Reply
    1. I hear ya Ken. I figure corrections of 10%, 20% and more can and will happen. It’s just the markets doing it’s thing….

      Anything on your buy list?
      Mark

      Reply
  4. Been there, done that. Us older investors may have more resilience to corrections? I sent my kids an email the other day…hey kids, if you’ve got cash, good time to invest.
    Good post Mark. Most investors (particularly newer) need reassurance and guidance.

    Reply
  5. Deane Hennigar (RBull) · Edit

    Thanks.

    Yep. Focus on what you can control. Keep from harming yourself.

    A correction here is healthy. Its always a little hard on the head especially in deccumulation stage, but correct- no worries. Our income continues to rise, and expecting a few more positive announcements soon. Energy gets extra crushed on any bad days and its funny to me. Industry so mispriced currently, but a few more are waking up to it. $180 oil on the way?? Maybe it will stay the orphan no one wants to adopt.

    Reply
    1. Ya. This is a great reminder that anyone high % in equities should expect things to go down 20% or even 30% at times. Such is life. My dividend income is up though = SU 12% raise + Telus = 7% raise on top of about a dozen raises already this year.

      Dividends are irrelevant though some say! (Not you.) Ha.

      I read that, $180 oil? Maybe!!
      Mark

      Reply
    1. Nice. I love this quote:

      As Jonathan Clements, a former Wall Street Journal columnist once said:
      “If you want to see the greatest threat to your financial future, go home and take a look in the mirror.”

      A 10% or 20% S&P 500 plunge is out of my control. This makes it imperative that investors recognize their behavioural pitfalls before committing to any decisions which can affect their investment goals.

      You have nothing to worry about since I recall your pension + portfolio income > expenses. Kudos.

      Reply

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