After a 20% Drop, Then What?

George Chin |

Markets continue to be volatile and are fluctuating based on speculation about what the Federal Reserve will do in the future. It all comes down to inflation at this point; that is something we are watching very carefully. With all the uncertainty around interest rate and inflation, markets have been under pressure (both equity and fixed income markets).
I thought you might find it interesting what average returns for equity markets were after a 20% downturn. The table below highlights the data in the last 70 years of 20% or more corrections.

As you can see, in the majority of cases, markets have historically bounced back despite fears that a recovery did not seem possible. Interestingly, when markets drop 20% this is often when retail investors feel uncomfortable and sell. 
A long-term perspective is important when one invests. This table illustrates why that tends to be the right strategy for most investors.

Source: LPL Research, FactSet 5/20/22

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