The stock market has taken investors on a rollercoaster ride over the past few weeks, jangling plenty of nerves in the process.
In times like these, looking at some historical perspective can go a long way toward easing investors’ minds. Specifically, let’s look at market corrections, which are said to occur when the market falls 10% from a recent high point.
Market declines of 10% occur, on average, once per year, according to research by JP Morgan Asset Management. And drawdowns of 20% take place once per market cycle.
The bottom line is that corrections are completely normal. They’re part of the process that, over time, keeps the prices of stocks in line with their fundamental value based on earnings and other factors. You might think of corrections as a pressure valve, keeping the market from expanding into a dangerous bubble.