Markets correct. They always do.
Corrections, also referred to as “drawdowns,” occur each year. Let’s go back five years and look at the maximum drawdowns for the S&P 500(1)
- 2020 -33.9%
- 2021 -5.2%
- 2022 -25.4%
- 2023 -10.3%
- 2024 -8.5%
What’s remarkable is that, despite these dips, returns weren’t negative. Rather, the S&P 500 stock index returned an impressive 98.55%, or 15.25% per year when dividends were reinvested. (2)
Corrections are like pruning a garden.
Markets, much like thriving gardens, need occasional pruning to stay healthy. Without pruning, a garden can grow wild and unruly, choking out its own potential. Similarly, market corrections trim the excess overpriced stocks, speculative bubbles, and runaway enthusiasm. Corrections are needed for strong, sustainable growth.
For now, let’s not confuse inevitability with imminence. A correction is inevitable. We just can’t time it.
The bigger question is: are you ready to stick with your investment strategy when it does? If you have a plan and the patience to ride out the bumps, you’ll be in a strong position to weather the storm and benefit when the market inevitably rebounds.
Stay the course,
Barbara
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