Sunday, April 21st, 2024

More about investment market “corrections”

October 22, 2014 by  
Filed under Investing, Investment markets, Investor Behaviour

To make it clear how integral market corrections/fluctuations/downturns/whatchamacallits are to the process of earning the superior long term returns that accrue to the owners of the great businesses of the world, consider the statistics below that are frequently quoted in the media and which I read once more this month in a circular from Fidelity Investments.

Equity Market Corrections typically occur with a frequency of:

  • Three corrections per year greater than 5%
  • One correction per year greater than 10%
  • One correction every three years greater than 20%

During the 30 years or more that a typical 62 year old couple will spend in retirement, there will thus be about :

  • 90 corrections of 5% or more
  • 30 corrections of 10% or more
  • 10 corrections of 20% or more

Through all this, the equity market will likely do its thing and compound at 7% to 10% per annum, thus doubling its asset value and income paid out every seven to ten years, as it has done for the last 200+ years.  The less you are surprised by these facts, the better are your odds of success.

David McGruer CFP

David McGruer CFP


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