So far 2022 has reminded us that attractive long-term stock returns come with a cost: volatility. The S&P 500 index fell nearly 10% from its all-time highs in January amid fears of the Federal Reserve (Fed) being more aggressive to fight inflation. After a steady 2021, we were overdue for a correction. 

It’s important to remember stock market corrections are perfectly normal. For those whose anxiety levels may have risen recently, here are some numbers to provide reassurance:

  • Stocks are higher 90% of the time one year after a correction 
  • 63% of years the stock market declines 10% or more (16% on average)
  • The average stock market return is about 10% per year since 1928

You can’t predict the future based on historical data, but you can analyze the past and try to calculate reasonable probabilities. This data shows that stocks have historically performed well following a correction. These declines are the price of admission for long term investors. What does that mean? In simple terms: risk is the price you pay for the possibility of a higher long-term reward. 

As always, it’s important to review your portfolio to make sure you have a savings and investing process that can withstand up and down markets. If you have any questions on your financial plan, please don’t hesitate to reach out.

George Maroudas 
Twitter @ChicagoAdvisor

Disclaimers and Sources:

Average Historical Drawdowns: Link here
Stocks up 90% of the time one year following a correction: Link here
63% of years the stock market loses 10% or more: Link here 

Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing. 

Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. The Standard & Poor’s Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.