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With two huge market declines in a the same decade, investors are constantly on edge
waiting for the next crash, but we’re more likely to see cyclical, not secular, market drops for the simple fact that they happen more often. Here are the details.
The above introductory comments are edited excerpts from an article* by Ben Carlson (awealthofcommonsense.com) entitled What Are the Odds We’re Heading For Another Crash?.
Carlson goes on to say in further edited excerpts:
Let’s assume the S&P 500 ends up falling 10% or more, something that hasn’t happened since 2011. I don’t know if this will happen, but it’s not out of the realm of possibilities. Does this mean we’re heading for another 50% crash? Maybe, but probably not as that magnitude of loss is fairly rare historically:
- Since 1950 there have been
- only 28 instances when stocks fell by 10% or more, roughly once every two years (go back to 1928 and it happens around once a year),
- only 9 times when stocks fell 20% or more and
- only 5 occasions when stocks have fallen 30% or more. It happens, but it’s rare. That’s one out of every thirteen years.
Below are the rest of the stats on the double digit losses:
You can see…[from the above that] the huge losses are the exception, not the rule…These numbers don’t make you feel any better when you see the value of your portfolio drop, but it’s puts things into perspective. There are no rules set in stone in the financial markets and there’s no playbook that tells you ahead of time [what will happen]…The above stats aren’t actual odds – it’s just what’s happened historically. [After all,] anything can happen.
There are always outlier events that could strike and upset market dynamics to cause a crash – no one really knows – but you can’t plan on a stock market crash every single time stocks fall. Sometimes stocks go down without an enormous crash…
Conclusion
Plan on seeing stocks fall plenty of times over your lifetime, including the occasional crash.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://awealthofcommonsense.com/heading-another-crash/
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