By: Dividend Sensei
A market dip is a 5% decline from all time highs. These happen on average every six months or so. They can be triggered by literally anything, since in the short-term markets can be highly irrational and focused on short-term events.
Market correction are a 10+% decline from all time highs. According to Ned Davis Research since 1900 a correction has occurred on average every 12 months. There have been 124 of them, many during the Depression. Since WWII they have occured every 18 months. They usually last 14 weeks, and the average decline is 12% to 13%. For context the sharpest drop in the current correction is 12%.
A bear market is a 20+% decline from all time highs, and on average since 1900 has occurred every 3.5 years, lasts 15 months, and causes a 32% decline from all time highs. Since World War II bear markets are far more rare, occurring on average every 14 years, lasting 14 months, but with 41% peak declines.
But here’s the important thing to realize. On average it takes the stock market only 10 months to recover from a bear market. This means that fears that you’ll lose your nest egg are overblown. That’s assuming you don’t panic sell. If you sell during a bear market? Well let’s put it this way. Calpers, the California public workers pension program, lost $100 billion in the financial crisis. Despite the market more than quadrupling since then they have yet to recoup their losses. Why is that?