When markets fall, it’s easy to forget that downtrends are part of the investing cycle. With the recent volatility, we want to review three common terms that you may be hearing that describe today’s financial markets.
- The first term is “pullback,” the mildest form of a drop in the markets. A pullback is a market dip of 5% to 10% after a peak. Pullbacks are usually very short term and are normal adjustments to an investment cycle.
- The next term is “correction,” which is used when markets drop 10% to 15% after a peak. A correction is usually short term, lasting from a few weeks to a few months.
- The last term is a “bear market,” where the drop is 20% or more since the last peak. Historically, the average bear market lasts just over 9 months. Bear markets are normal, and there have been 26 bear markets in the S&P 500 index since 1928. 1
When prices are trending lower, it’s easy to second-guess yourself and you may be thinking, “this time, it’s different.” However, history has shown that markets are positive the majority of the time. Of the last 92 years, bear markets have comprised only about 20.6 of those years. 1
Working with an experienced financial advisor can also help you build a portfolio that should help withstand volatility. Your portfolio should align with your goals, time horizon, and risk tolerance. For help creating a portfolio that has all these factors in mind, reach out to our team or your financial advisor to make these adjustments.
- Hartford Funds. 2021. “10 Things You Should Know About Bear Markets”
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
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