The spectrum of market declines
| Type | Decline | Typical duration | Frequency (S&P 500) |
|---|---|---|---|
| Pullback / dip | −5% | Days to weeks | 3–4x per year |
| Correction | −10% to −20% | Weeks to months | ~1x per year |
| Bear market | −20%+ | Months to years | Every 3–5 years |
| Crash | −20%+ rapidly | Days to weeks | Rare |
Why corrections happen
Markets never move in a straight line upward — they're driven by millions of investors constantly reassessing value. Corrections happen when: valuations have stretched too far from fundamentals; an economic data point disappoints; geopolitical uncertainty spikes; or simply when enough investors decide to take profits simultaneously. Often there's no single trigger — markets can correct 15% with no obvious cause, just as they can rise 15% with no obvious catalyst.
The historical record: corrections are buying opportunities
Looking back at every correction in the S&P 500 since 1928, the market was higher 12 months later in roughly 80% of cases. This doesn't make corrections riskless — sometimes they deepen into bear markets — but the base rate strongly favours staying invested. Investors who pulled out during the many −10% to −15% corrections in the 2010s and waited for "clarity" missed some of the best return years in history.
"The stock market is a device for transferring money from the impatient to the patient." — Warren Buffett
What this means for you
When your portfolio falls 10–12%, the correct response for most long-term investors is: nothing. Or better still, if you have cash available, it's an opportunity to buy more at lower prices. The worst response is selling in fear, locking in the loss, and waiting for confidence to return — by which point prices are usually higher again. The investors who build the most wealth over time are those who don't confuse normal corrections with permanent declines.