In Long History of Market Crashes, Coronavirus Crash Was the Shortest
The year may have been unprecedented, but the best course for navigating a market dip stayed the same.
The year may have been unprecedented, but the best course for navigating a market dip stayed the same.
The market downturn caused by the COVID-19 pandemic was one of the most severe in recent history, but it also proved to be one of the fastest recoveries. This episode reinforces two important lessons for long-term investors:
Including the COVID-19 crash, there are a total of 18 bear markets over this period of 150 years, suggesting that on average they occur about once every eight years. The worst one was the Crash of 1929, along with the first part of the Great Depression, which saw a 79% loss. It took the market a little more than four years to recover from that trough. The second-worst drop is the 54% decline over the Lost Decade (the period from August 2000 to February 2009). The market index did not fully recover until May 2013, almost 12 and a half years after that decline began.
What I wrote at this time last year rings truer than ever: “Market risk is about more than volatility. Market risk also includes the possibility of depressed markets and extreme events. These events can be frightening in the short term, but this analysis shows that for investors who can stay in the market for the long run, equity markets still continue to provide rewards for taking these risks.”
Paul D. Kaplan, Ph.D., CFA, is director of research with Morningstar Canada.
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