Putting This Market Decline in Perspective

How bad was the recent decline?  It was the biggest since 2011.

To put it in better perspective, here is a chart (based on daily closes) showing significant S&P 500 Index declines since the all-time high prior to the 2008 Bear Market.

The area with the pink background highlights the "Bear Market" area beyond the 20% decline mark.


150828 SPX Snapshot Showing Draw-Downs

via Doug Short, Advisor Perspectives.


Buy and Hold investors must stomach significant drawdowns to get their returns — even in 'good' years.

The chart below shows S&P 500 intra-year declines compared with calendar year returns. The bars represent year-end returns since 1980, while the reddish dots mark each year's market low.



150828 SP500 Annual Returns vs Intra-Year Declines

via JPMorgan Guide to the Markets.


According to Business Insider, here are the historical frequencies of certain market correction levels.

Since 1900, we've seen:

  • 5% market corrections: 3x per year.
  • 10% market corrections: Once per year.
  • 20% market corrections: Once every 3.5 years.

The point is that 10-15% pull-backs are normal (and perhaps even healthy) for the market.


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