Market corrections (declines of 10% or more) happen, on average, about once per year. Bear markets (declines of 20% or more) occur roughly every three to four years. If you are invested in stocks, you will experience significant declines multiple times during your investing lifetime. The question is not whether it will happen — it is how you will respond when it does.
What the Data Tells Us
Since 1950, the S&P 500 has experienced 39 corrections of 10% or more. The average decline was 13.7%, and the average recovery time was approximately four months. Of those 39 corrections, 12 became bear markets (20%+ decline). The average bear market decline was 33.5%, with an average recovery time of about 22 months.
Here is the critical statistic: an investor who stayed fully invested in the S&P 500 from 1990 through 2024 — through the dot-com crash, the financial crisis, the COVID crash, and every correction in between — earned an annualized return of approximately 10.5%. An investor who missed just the 10 best days during that period earned only 5.9%. Missing the 20 best days reduced the return to 3.3%. Most of those best days occurred within two weeks of the worst days.
Why We Panic (and Why It Costs Us)
The urge to sell during a market decline is not a character flaw — it is a deeply wired survival instinct. Behavioral economists Daniel Kahneman and Amos Tversky demonstrated that the pain of losing money is approximately twice as intense as the pleasure of gaining the same amount. When your portfolio drops 20%, the emotional experience is equivalent to gaining 40% — except it feels worse because loss aversion amplifies the signal.
This asymmetry is why investors consistently sell at bottoms and buy at tops. Dalbar's annual Quantitative Analysis of Investor Behavior shows that the average equity fund investor has underperformed the S&P 500 by roughly 3-4% per year over the past 30 years — almost entirely due to poorly timed buying and selling decisions driven by emotion.
What to Do Instead
When markets drop, follow this framework:
- Review, do not react — Look at your financial plan, not your portfolio balance. If your plan was sound last month, a 10% market decline has not changed your long-term trajectory.
- Rebalance into weakness — If stocks have declined and your allocation has drifted below target, rebalancing means buying stocks at lower prices. This is the opposite of what feels right, and it is exactly what disciplined investors do.
- Harvest losses — Market downturns create tax-loss harvesting opportunities. Realize losses, maintain your allocation with similar funds, and use the losses to offset gains or reduce taxable income.
- Keep contributing — If you are still working and contributing to a 401(k) or IRA, a market decline means you are buying shares at lower prices. Dollar-cost averaging works in your favor during downturns.
- Call your advisor — This is what we are here for. When markets are turbulent, we provide perspective, run updated projections, and help you make decisions based on data rather than fear.
The Long View
In 2009, at the bottom of the financial crisis, the S&P 500 stood at 676. By 2025, it had exceeded 6,000 — a nearly ninefold increase. Every dollar invested at that terrifying bottom grew to approximately nine dollars. The investors who benefited were the ones who stayed the course. The investors who sold locked in their losses permanently.
Volatility is the price of admission for long-term equity returns. It is not a bug — it is a feature. The reason stocks return more than bonds and cash over time is precisely because they are more volatile. If stocks were safe, they would pay safe returns.
Meridian Wealth Advisors is an SEC-registered investment advisor. Past performance does not guarantee future results. This article is for educational purposes and does not constitute investment advice.