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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