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Your Personal Finance Questions - Answered!

“How often is there a stock market correction?”

We are in the middle of a stock market correction, which has the talking heads on TV excited, and investors beginning to get anxious. Our question today is on the topic of just how common this month’s action is.

The question is:

“How often is there a stock market correction?”

 Transcript - History of Stock Market Corrections

Based on the last 70 years of stock market history, a 10% stock market correction, exactly where we are today as I record this, has occurred about once per year.

Larger declines are a little less frequent. 15% declines have historically happened once every 3 years or so, and 20% declines have, on average, occurred once every 6 years.

And so many are beginning to ask if what we are experiencing now is normal.

Well, It has been 8 years since our last 15% correction, and 10 years since our last 20% correction. So you could say we are well overdue for a decline even worse than what we have experienced so far.

Which means that this month’s action is actually pretty normal. In fact, the lack of regular 15 or 20% declines recently has been more abnormal.

I think understanding this history helps investors realize that it is OK, and in fact perfectly normal, to see this kind of action in the stock market.

What should you be doing now?

The best thing you can do at this point is to save more. A year ago everyone was complaining that the stock market was too expensive. Now, if you have been waiting to put some money to work, here’s your chance.

As you can see from history, it is actually pretty rare to get a chance like we have today to put money in the market at a 10% decline. So take advantage of it, and you will thank yourself later.

Matt Hylland