By historical standards, market corrections are neither rare nor unpredictable. Since 1950, the S&P 500 has experienced a correction—defined as a decline of 10% or more from a recent high—approximately every 18 months. For long-term investors, these pullbacks are part of the normal rhythm of markets, not aberrations. And despite the emotional impulse to act, the data consistently shows that doing nothing is often the most prudent course of action.
Consider the historical context: between 1980 and 2023, the average intra-year decline in the S&P 500 was roughly 13%, yet the index posted positive annual returns in about 75% of those years. In other words, volatility is not an anomaly—it’s a feature of the market. Remember also, the S&P 500 has recovered from every correction and bear market on record, eventually pushing to new highs.
Corrections tend to be short-lived. According to CFRA Research, since World War II, the average correction has lasted about four months and has seen an average decline of 13%. The majority have not turned into bear markets, which are defined as a drop of 20% or more. While bear markets are more severe and emotionally taxing, they are also temporary: the average duration of a bear market since 1946 is just about 14 months, while bull markets last nearly five times as long on average.
And yet, investors routinely sabotage their own returns. According to data from Dalbar, the average equity fund investor has significantly underperformed the S&P 500 over the last 20 years, largely due to emotional decision-making—selling during declines and buying during rallies.
One of the strongest arguments for staying invested is the impact of market timing—or rather, the cost of mistiming. J.P. Morgan Asset Management found that between 2003 and 2023, missing just the 10 best days in the market would have cut an investor’s total return by more than half. Notably, many of those best days occur within weeks of the worst days, meaning that those who sell during corrections often miss the bounce-back.
This doesn’t mean investors should ignore risks or refrain from portfolio reviews. Prudent asset allocation, diversification, and rebalancing are all key elements of long-term success. But acting out of fear during a correction is rarely rewarded. Markets are forward-looking and tend to recover well before the economic data turns positive.
A disciplined approach—grounded in history, data, and emotional restraint—has outperformed reactive strategies time and again. As Warren Buffett famously quipped, “The stock market is a device for transferring money from the impatient to the patient.”
Corrections are inevitable, but they are not catastrophic unless investors turn temporary losses into permanent ones through panic selling. The record is clear: staying the course through volatility has historically delivered superior outcomes. In investing, patience isn’t just a virtue—it’s a competitive edge.
Note: Interlaken Advisors does not offer investment or portfolio management services.
Nothing herein is intended to be investment advice. All investments involve the risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.