MARKET COMMENTARY
Market Drawdowns: What History Shows a Long Term Investor
Falls of 10 percent are ordinary, falls of 20 percent are periodic, and both have historically been followed by recovery for diversified investors who stayed invested.
KEY TAKEAWAYS
- Corrections are a normal feature, not a system failure.
- The strongest recovery days cluster near the worst ones.
- A written plan is the best defence against a bad week.
Frequency, not surprise
Diversified equity markets have historically seen a fall of around 10 percent in most years and a deeper fall of 20 percent or more every several years. Treating either as an anomaly leads to reactive decisions at exactly the wrong point.
Why exiting is expensive
The best single days in a market cycle sit unusually close to the worst ones. An investor who sells after a sharp fall is very likely to be out of the market during the rebound, and missing a small number of those days materially reduces long run return.
The practical response
Write down in advance what you will do if your portfolio falls 20 percent. If the answer is rebalance and continue contributing, then a drawdown becomes a scheduled action rather than a decision made under pressure.
This note is published for information only. It is not personal investment advice, and the value of investments can fall as well as rise.