Should I Be Worried About The Stock Market Decline?

by Travis Pizel · 10 comments

stock market
In August of 2015, the stock market suffered the 8th and 10th largest drops ever recorded. In fact, it was the first time in history that the stock market declined more than 500 points on two consecutive days. Overall, from 8/17/2015 to 8/25/2015 the stock market dropped nearly 1900 points, wiping out nearly two years worth of gains. The loss represented 10.2% of the stock market’s total value, earning it the designation of an official market correction.

Not Just a Bad Week

First, we need to realize the losses during that period in August wasn’t just an isolated bad week. While August 17th through the 25th saw a sudden and drastic decline, the stock market had actually been declining since it closed at an all time high of 18312.39 on May 19th, 2015.

Should Investors Be Worried?

People saw their investments and retirement account values seemingly in free fall for over a week in August. Experts always say that investments in the stock market are for the long term, and temporary declines should be ignored. That’s easier said than done, exemplified by the massive sell off caused by investor panic after an initial drop. But should investors be worried? How long will it take for the stock market to gain back what was lost from May to August of 2015?

Predicting The Future

While nobody can accurately predict the future, sometimes the past can give us some insight. Since the year 1900 a stock market correction is seen about once a year. By comparison, the last drop of 10% or more occurred almost 4 years ago in October of 2011. Investors shouldn’t have been surprised that a market correction occurred. In that same time period, for each market correction the average time from the peak of the market to the lowest point of the decline is 115 days. It was 98 days from the most recent stock market high of May 19th to the market low on August 25th. If August 25th was the low point of this market correction, it’s characteristics are very similar to the average.

History also tells us that in the last century, the average time from the lowest point of a correction to when the stock market returns to it’s previous high is approximately 17 calendar weeks. Of course, nobody knows if we’ve really hit the bottom of the correction yet. It’s hard to tell, as the stock market can be extremely volatile following such a sudden downturn as we’ve seen in the wild swings since August. But if we have seen the bottom of the correction, we could approach a full recovery by the end of the calendar year.

Only time will tell whether we’ve see the bottom of this market correction, or if continued volatility through the rest of the year will continue to drag investments down. But if you’re in it for the long term, and you should be, once the market begins its inevitable ascent it’s a relatively short time period before we’ll see our investments again growing for future financial security.

Did you panic, or worry about your investments with the sudden decline of the stock market? Did you sell any of them, or are you riding the market out?

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{ read the comments below or add one }

  • Well, in stock market, you win some and you lose some. But with what’s currently happening today in the stock exchange field, I think people must be aware of their dealings and transactions, or they will end up bankrupt.

  • The market goes up and down, it’s just part of life. People lose money when they panic and rush to sell their stocks. It is the worst time to do it. I just sit and wait out and it most always turns in my favor. I buy when there in a bear market and sell when the market is at its peak. It has worked for me. Just leave your emotions out and you are fine!

  • SassyMamaw says:

    Great coverage of difficult material, Travis! I do ‘dollar cost averaging’. I figure that when the market is down, I just get more shares for the same money. It keeps panic to a minimum.

    A silly trick I have is to wait a week or two after a tumble to peek at my portfolio online. By then, it’s usually recovered a little bit, so it isn’t so dramatic a change as if I had looked at it immediately!

    • Travis Pizel says:

      Thanks, SassyMamaw…..and thanks for sharing your approach. I read about “dollar cost averaging” while researching the post – it seems like one of those “next level” investing techniques. A post for another time!

  • InvestAsian says:

    I see a lot of people refer to “the market” as if there’s only one. While the S&P500 and DJIA are freaking out, there are a a bunch of different asset classes, indices and stocks in not only the US, but elsewhere in the world that are doing just great and have attractive fundamentals.

    • Travis Pizel says:

      Very true, InvestAsian…..this article was purposely geared towards the US stock market for simplicity. For many people who invest, that’s all the further they go anyway.

  • Jeremy says:

    The stock market does this and the important thing to remember is that we cannot predict the future and can only rely on the facts as we have them right now.

    As you said the market is down and the volatility is there. To help during times like these well planned risk management strategies should be in place. For example, having the right asset allocation for your stage of life and investment horizon (time).

    One thing I do, which many buy and hold investors will disagree with, is wait to add any money to stocks when the S&P 500 is trading below its 200 day moving average. I know that sounds like market timing, but what it does is it helps me manage my risk by not adding to my stock holdings when the facts tell me we are in a bear market. I want to add money when we are coming out of that bear market. That is my style and it has been working for me.

    • Travis Pizel says:

      If it works for you….by all means. It would be interesting to do an experiment where someone would do their own thing with their investments, and then compare with the “expert” results and see if they’re really that much better.

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