Market Corrections Don’t Necessarily Mean Bad Annual Returns

Falling markets can rattle the nerves of even the most experienced investors. While 2015 ended basically where it started, 2016 has seen the worst start to a calendar year in stock market history. Yet the year is young, and stock market pullbacks or corrections are actually far more common than we may think.

Looking back over the last 30 years, the S&P 500 has seen an intra-year decline of over 10% on average. Meaning at some point in the year, the stock market fell from a previous high to a low resulting in double digit losses. We’ve seen that in January of this year.

Intra-Year Declines on S&P 500

As evident in the chart above, years with large losses don’t necessarily mean bad annual returns. Take 2011 for example, which saw a loss of 13% during the year but ended up 15%. And 1987 experienced the stock market crash of Black Monday, falling 22% in a day, yet investors who held on for the whole calendar year ended up a positive 5%.

Warren Buffet was quoted as saying, “The most important quality for an investor is temperament, not intellect.” Markets will go up and down, but it’s those investors with a long term mindset who will have the best chance of capturing the long-term rates of return.

While we don't know what the future will bring, focusing on short-term changes and making sudden adjustments to your portfolio could have negative long-term effects.

If you're not currently our investment client and feel your portfolio isn't positioned correctly to weather short-term fluctuations, or that your investment plan is not developed properly for long-term success, contact our office for a personalized review. We would be happy to discuss options to enhance your financial picture.