The stock market has been a reliable tool for investors to build wealth and achieve financial goals. However, even as indexes like the S&P 500 and Nasdaq 100 have consistently outperformed inflation, they have also experienced multiple corrections. These corrections can impact individual assets, such as when a company’s stock price drops due to poor earnings or overvaluation.
U.S. News & World Report recently interviewed Dan Tolomay, chief investment officer at Trust Company of the South, to reveal critical insight into stock market corrections. According to Tolomay, “A correction is when a broad measure of the market – the S&P 500, for example – declines at least 10% but less than 20%.”
Tolomay emphasizes the importance of staying focused on long-term goals and not letting short-term market fluctuations dictate investment decisions. He suggests historical context that demonstrates how this straightforward approach has worked for long-term investors: “Since 1980, the S&P 500 has experienced an intra-year decline of -14%, on average. During that same time, the average calendar-year return has been 10%. In 2023, for example, the S&P 500 was off -10% from July 31 to Oct. 27 but finished the year up by 24%.”
While corrections can be unsettling for investors, they are a healthy part of the market that keeps valuations in check and prevents a market crash. Investors should assess their risk tolerance and financial goals when planning for a correction.
Click here to read the entire U.S. News & World Report article. If you have any questions about stock market corrections and how to prepare for them, please get in touch with our team, we would love to speak with you!
