Market ‘Dips’ and Market ‘Corrections’

As the market sank this last week, we had a few comments from clients about this ‘rocky ride’. (One note of appreciation – these clients were calling with more concern for us than their portfolios! Thanks for that!)

Now is a good time to review a few statistics about market movements. First of all, it’s hard to remember this after last year, but nearly every calendar year since 1926 has contained a ‘dip’ of around -5% to -7%, and many years have contained more than one ‘dip’. On average, these moves happen at least every year, and over some shorter time frames, they happen twice a year! So we can consider this kind of movement normal. What’s not normal is going without a 5% correction, like we did last year.

Furthermore, ‘corrections’, of more than -10%, happen about 2/3 of the time, also within the range of normal.

One alarming feature of both dips and corrections, which tends to imbue them with more importance than they deserve, is that they happen fast. Markets rarely slide centimeter by centimeter over a long period of time. Instead they tend to plunge. Meanwhile, the recovery from the dip or correction can take months, making this feel all the worse. However, recovery occurs – so far – 100% of the time. So using a correction or a dip to buy assets is smart, provided the increased exposure synchs up with your financial plan.