“pullback,” a drop of 5% to 9.99%
“correction,” a decline of 10% to 19.99%
“bear market,” or 20% + drop.
Pullbacks are normal, and often begin without warning, but tend to be short-lived, and they normally aren't disruptive enough to change the market's longer-term trend.
Corrections are when the market suffers a 10% drop. Corrections do more damage and last longer. In the 22 corrections in the post-war era, the S&P 500 had an average loss of 13.8% and lasted about five months. After hitting a low, it takes the market about four months, on average, to get back to even.
Tips to navigate the storm:
🟢 The Stock Market is all about entry points. You can use sell-offs as opportunities to lower your average cost on your positions.
🟢 When the best time comes to buy in a market downturn, you won’t want to. The best time to buy generally comes when nobody else will; other people’s unwillingness to buy tends to make securities cheap.
🟢 Sellers push prices lower and lower until it’s no longer justified to continue selling. Buyers then outweigh sellers which brings prices higher. Soon, prices exceed the decline’s underlying fundamental values and the sellers return. This is the market cycle.
🟢 It can be an easy decision to pull your money out of the market due to many fears, but that then creates a bigger challenge, finding the ideal point to be comfortable putting your money back in. So, most time, what was supposed to be a temporary move out of the markets, can easily become a permanent one.
🟢 You can’t control the markets, but you can control how you react to volatility & swings. The key is to zoom out from any particular period, and focus on the long-term trend.
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