If you, like me, sometimes find yourself getting worried due to negative media headlines, I have some valuable information to share that will help put your mind at ease and potentially make you a more successful investor.
First, let’s talk about understanding stock market fluctuations. There are several levels of market movements to be aware of:
- Stock Market Dip: This occurs when the stock market falls by five percent or more but quickly rebounds. On average, this type of dip has happened around three times per year over the last century.
- Stock Market Correction: A correction happens when the stock market drops by 10 percent or more and then recovers. On average, a correction like this occurs slightly more than once a year.
- Bear Market: This is when the stock market drops by 20 percent or more before rebounding. Historically, this kind of bear market has occurred approximately once every three years.
- Recession: In the United States, economic recessions have happened roughly once every five years since World War II.
The key takeaway here is that market volatility, including dips, corrections, bear markets, and even recessions, has always been a normal part of the financial landscape.
For example, if we consider the current Dow Jones index at around 36,000, a 10 percent correction would equal 3,600 points. While this might seem significant, remember that corrections like this happen on average once a year.
Here’s the most crucial fact: Throughout all of these market fluctuations over the past century, the stock market has, on average, delivered nearly double-digit returns. So, even though these fluctuations may create uncertainty, historically, they have not prevented investors from building wealth over time.
The solution to navigating these market movements is to keep your life simple by staying invested in quality investments, adhering to a solid financial plan, and maintaining discipline. This approach not only has the potential to generate substantial returns but also allows you to enjoy your life without constant fear and worry.
While past performance doesn’t guarantee future results, my professional opinion suggests that, in this context, the future is likely to resemble the past. My goal is to provide you with the knowledge and confidence to make informed investment decisions, ultimately helping you achieve a life of financial happiness.