Help in navigating market corrections

February 7, 2018


The U.S. stock market has experienced some volatile trading days recently, including consecutive sessions in which the Standard & Poor's 500 Index posted significant losses. Although there are explanations for these sell-offs—concerns about heightened valuations, rising inflation, and U.S. Federal Reserve policy, to name a few—they have caught most investors by surprise. And they've led to inevitable questions about whether one of the longest-running bull markets since the Great Depression is about to cool off.

It's important to put these losses into context. As the graphics below show, trying to time these events can lead to costly mistakes.

Downturns aren't rare events, and the typical investor will endure many

Global stock prices, One attention-grabbing downturn every two years

Source: Vanguard analysis based on the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI All Country World Index thereafter. Both indexes are denominated in U.S. dollars. Our count of corrections excludes those that turned into a bear market. We counted corrections that occurred after a bear market had recovered from its trough even if stock prices hadn’t yet reached their previous peak.

Dramatic losses can sting, but it's important to keep a long-term perspective

30 day average intraday volatility, -4.7 percent Decrease in S and P 500 index during first week in February 2018

Note: Intraday volatility is calculated as daily range of trading prices [(high – low)/opening price] for the S&P 500 Index.

Source: Vanguard calculations, using data from Yahoo! Finance.

Timing the market is futile: The best and worst trading days happen close together

S and P 500 index daily returns, December 31, 1979 through January 31, 2018

Source: Vanguard.

Altering asset allocations can be costly

Value of $1,00 invested on October 9, 2007, pre-crisis peak, thorugh February 5, 2018

Note: Balanced portfolio is represented by 60% S&P 500 Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index; bonds are represented by Bloomberg Barclays U.S. Aggregate Bond Index; and cash is represented by Bloomberg Barclays U.S. 3-Month Treasury Bellwether Index.

Source: Vanguard calculations, using data from FactSet.

Help your clients amid volatility

When discussing market volatility with your clients, help them remember the value of:

  • Having realistic expectations: Vanguard's Investment Strategy Group anticipates higher risks and lower returns over the near and medium term.
  • Staying diversified: A great way to insulate a portfolio is to have exposure to stocks, bonds, and international markets. Bonds can act as ballast during downturns. International exposure provides access to markets that may be generating positive performance when others are falling.
  • Tuning out the noise: There's an old adage of never checking accounts when stocks are tanking. It's smart advice. As the graphics above show, making a decision based on a recent market event usually results in a mistake.

Use our Client Relationship Center™, with its framework and coaching aids, to help your clients accept that market volatility is a normal part of investing.

If volatility is making clients lose sleep, it may be time to reevaluate their risk tolerances and their subsequent asset allocations.

Editor's note: Unless otherwise stated, data are for the S&P 500 Index. Vanguard believes the assertions in this article would also hold if international data were used.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

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