Successful investing relies not only a strategic asset allocation, but also on a solid plan and the right mindset.

Many studies have examined stock market returns, losses, and volatility to better understand financial markets. Is there information that could help us make better decisions when markets decline and our resolve is tested?

Key statistics to know before investing:

• A 10% drop in the market is called a correction, while a 20% drop is called a ‘bear’ market.
• Over the last 93 years, the market has fallen by at least 10% more than 50 times. This means on average, the market corrects by at least 10% about once every 2 years.
• Out of those 50 corrections, 15 times the market fell by more than 25%, which is about once every 6 years. 

No one can predict when the market will drop and we can always see things clearer with hindsight. It is prudent however to learn from history. 

Key principles to keep in mind when investing:

• Don’t fear market declines – they are inevitable.
• Despite market volatility and corrections, the market is resilient.
• This resilience is due to corporate profits growing by 8% annually over the last century.
• Seize opportunities during market declines to acquire quality assets at favorable prices.

Buying growth assets at reasonable prices and avoiding expensive markets sound simple but is far more challenging in practice. Predicting market declines accurately is difficult and consistently forecasting short-term corrections is nearly impossible.

Keeping a modest portion of your portfolio invested for the long term remains your best investment strategy. This approach is simple but not easy, especially during a ‘bear’ market. Staying invested when the market is falling tests your commitment.

Another important rule to remember:

Avoid focusing on daily market fluctuations, as they can cloud your judgment. Instead, look two or three years ahead and keep in mind that situations usually improve over time. Owning a high-quality, diversified investment portfolio is your best defence and greatest opportunity for future growth. Panicking and selling during market downturns is usually the most detrimental decision.

SCM is here to support you through every stage of your investment journey and we are committed to delivering value even during the most challenging times. 

SCM Financial Group Investment Committee