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7 Freedom Facts that will Free You from the Fear of Corrections and Crashes

Freedom Fact 1: On Average, Corrections Have Occurred About Once a Year Since 1900

Have you ever listened to the pundits on Sky News or CNBC talking about the stock market? Isn’t it amazing how dramatic they can make it sound? They love talking about volatility and turmoil because fear draws you into their programming. They’re constantly analysing mini crisis that prognosticators predict could trigger market mayhem.

We can’t blame them for peddling drama, it’s their job. A lot of it is just hyped up to stop you from reaching for your remote control.  The trouble is, all this drama, all this emotion can make it hard for us to think clearly. Hearing these ‘experts’ speaking about the possibility of a correction or crash, it’s easy to become anxious because it sounds like the sky is about to fall. It might make for good TV, but the last thing you want is to make fear-based financial decisions. We have to remove as much emotion as possible from our investment decisions.

Instead of getting distracted by all this noise, it helps to focus on a few key facts that truly matter. For example, on average, there’s been a market correction every year since 1900 (US stock market). Just think about it: if your 50 years old today and have a life expectancy of 85, you can expect to live through another 35 corrections.

Why does this matter? Because it shows you that corrections are just a routine part of investing. Instead of living in fear of them, we have to accept them as regular occurrences. And you know what else? Historically, the average correction has lasted only 54 days – less than two months! In other words, most corrections are over before you know it. Not that scary, right?

Still, when you’re in the midst of a correction, you might find yourself becoming emotional and wanting to sell because your anxious to avert the possibility of pain. But it’s important to note that, in the average correction over the last 100 years, the market has fallen only 13.5%. From 1980 through to the end of 2015, the average drop was 14.2%.

It can feel pretty uncomfortable when your assets are taking that kind of a hit and the uncertainty leads many people to make big mistakes. But here’s what you have to remember: if you hold tight, it’s likely that the storm will soon pass.

Freedom Fact 2: Less Than 20% of All Corrections Turn Into a Bear Market

When the market starts tumbling, especially when its down more than 10%, many people hit their pain threshold and start to sell because they’re scared that this could turn into a death spiral. Aren’t they just being sensible and prudent? Actually, not so much. It turns out that fewer than one in five corrections escalate to the point where they become a bear market. To put it another way, 80% of corrections don’t turn into bear markets.

If you panic and move into cash during a correction, you may well be doing so right before the market rebounds. Once you understand that the cast majority of corrections aren’t that bad, it’s easier to keep calm and resist the temptation to hit the eject button at the first sign of turbulence.

Freedom Fact 3: Nobody Can Predict Consistently Whether the Market Will Rise or Fall

The media perpetuates the myth that, if your smart enough, you can predict the market’s moves and avoid its downdrafts. Many in the financial industry sells the fantasy, predicting where the markets will be at the end of the year, as if they have a crystal ball or (equally unlikely) superior insight.

When it comes to our finances, its best to face facts. And the fact is, nobody can consistently predict whether markets will rise or fall. Its delusional to think we could successfully ‘time the market’ by jumping in and out at the right moment.

If you’re not convinced, here’s what two of the wisest masters of the financial world think of market timing and the challenge of predicting market movements. Jack Bogal, the founder of Vanguard which has more than $3 trillion in assets under management, has said, ‘Sure, it would be great to get out of the stock market at the high and back in at the low, but in 65 years in business, I not only have never met anybody that knew how to do it, I’ve never met anybody who has met anybody that knew how to do it’. And Warren Buffet has said, ‘The only value of stock forecasters is to make fortune tellers look good.”

Freedom Fact 4: The Stock Market Rises over Time Despite Many Short-Term Setbacks

The S&P 500 index (US share market) experienced an average intra-year decline of 14.2% from 1980 through to the end of 2015. In other words, these market drops were remarkably regular occurrences over 36 years. Once again, nothing to be scared of, just a matter of winter putting in its usual seasonal appearance. But what may really blow your mind is the market ended up achieving a positive return in 27 of those 36 years. That’s 75% of the time!

Why is this so important? Because it reminds us that the market generally rises over the long run, even though we hit a huge number of potholes along the way. We had our fair share of problems over those 36 years including two Gulf wars, 9/11, the conflicts in Iraq and Afghanistan, and the worst financial crisis since the Great Depression known as the GFC of 2008. Even so, the market ultimately rose in all but 9 of those years.

What does this mean in practical terms? It means that we should always remember that the long-term trajectory is likely to be good, even when the short-term news is dismal and the market is getting smacked.

Freedom Fact 5: Historically, Bear Markets Have Happened Every Three to Five Years

I hope your starting to see why it’s a good idea to be a long-term investor in the stock market and not merely a short-term trader. And I hope it’s equally obvious that you don’t need to live in fear of corrections. Just to recap for a moment: you know now that corrections happen regularly; that nobody can predict when they’ll happen; and that the market usually rebounds quickly, resuming its general upward trajectory. Any fear you once had should turn to power.

But what about bear markets? Shouldn’t we be terrified of them? Actually, no. Here again, we need to understand a few key facts so we can act on the basis of knowledge, not emotion.

The first fact you need to know is that there were 34 bear markets in the 115 years between 1900 and 2015. In other words, on average, they happened nearly once every three years. More recently, bear markets have occurred slightly less often: in the 70 years since 1946, there have been 14 of them. That’s a rate of one bear market every 5 years.

We know that that the future will not be an exact replica of the past. Still, it’s useful to study the past to gain a broad sense of these recurring patterns. As the saying goes, ‘History doesn’t repeat itself, but it rhymes”. So, what have we learned from a century of financial history? We learn that bear markets are likely to continue happening every few years, whether we like it or not.

How bad does it get when the market really crashes? Well, historically, the S&P 500 has dropped by an average 33% during bear markets. In more than a third of bear markets, this index plunged by more than 40%. We are not going to sugar coat this. If your someone who panics, sells everything in the midst of this mayhem, and locks in a loss for more than 40%, you’re going to feel like a grizzly bear mauled you for real. Even if you have the knowledge and fortitude not to sell, you’ll likely find that bear markets are a gut-wrenching experience.

Sadly, many advisors fall victim to the same fear and hide under their desks during these tumultuous times. The ongoing communication during these storms is what sets Halcyon Financial Services apart. Halcyon becomes the proverbial lighthouse, broadcasting the message ‘Stay the Course’

But here’s what you need to know, bear markets don’t last. Over the past 70 years, they have lasted on average about 12 months.

When you’re in the midst of a bear market, you’ll notice that most of the people around you become consumed with pessimism. The start to believe that the market will never rise again, that their losses will only deepen, that winter will last forever. But remember: winter never lasts! Spring always follows.

The most successful investors take full advantage of all that fear and gloom, using these tumultuous periods to invest more money at bargain prices. The best opportunities come in time of maximum pessimism.

Freedom Fact 6: Bear Markets Become Bull Markets, and Pessimism Becomes Optimism

Do you remember how fragile the world seemed in 2008 when banks were collapsing and the stock market was in free fall? When you pictured the future, did it seem dark and dangerous? Or did it seem like the good times were just around the corner and the party was about to begin?

 On March 9, 2009, the market finally hit rock bottom. And do you know what happened next? The S&P 500 index surged by 69.5% over the next 12 months. That’s a spectacular return! One moment the market was reeling. The next moment, we began one of the greatest bull markets in history! As of September 2017 (at the time of writing this), the S&P 500 index has risen an astonishing 290% since its low point in March 2009.

You might think this is a freak occurrence. But the market has averaged a 39.04% return in the first 12 months following a bear market over the past 75years! Now you can see why Warren Buffet says he likes to be greedy when others are fearful. In fact, every single bear market in US history has been followed by a bull market, without exception.

At the time of writing the S&P 500 stands at an all-time high and this bull market is more than seven years old. So, the possibility that we may be due for a fall has probably been on your mind. It certainly makes sense not to take carefree risks when stocks have soared for years.

But the fact that a market is at all-time highs doesn’t necessarily mean that there’s trouble ahead. Generally, the developed markets have a general upward bias. It rises over the long term because the economies continue to grow. It rises over the long term because the economy continues to grow. Thanks to inflation, the price of everything is at all time high almost all the time. If you don’t believe that, check the price of your big mac, your café latte or new car. Chances are, there all priced at all-time high, too.

Freedom Fact 7: The Greatest Danger Is Being out of the Market

I hope you agree with me now that it’s not possible to jump in and out of the market successfully. As Jack Bogal (founder of Vanguard) once said, ‘The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible’. Even so, the fact that the US market is hovering around all-time highs might temp you to play it safe by waiting on the sidelines in cash until stock prices have fallen.

The trouble is, sitting on the sidelines even for short periods of time may be the costliest mistake of all.  I know this sounds counterintuitive, but this could mistake has a devastating impact on your returns when you miss even a few of the markets best trading days.

From 1996 through 2015, the S&P 500 returned an average 8.2% a year. But if you missed out on the top 10 trading days during those years, your returns dwindled to just 4.5% a year. Can you believe that? Your returns would have been cut almost in half just by missing the 10 best trading days in 20 years!

It gets worse! If you missed out on the top 20 trading days, your returns dropped from 8.2% a year to a paltry 2.1%. And if you missed out on the top 30 trading days? Your returns vanished into thin air, falling all the way to zero!

Meanwhile, a study by JP Morgan found that 6 of the 10 best days in the market over the last 20 years occurred within two weeks of the 10 worst days. The moral: if you get spooked and sold at the wrong time, you missed out on the fabulous days that followed, which is when patient investors made almost all of their profits. In other words, market turmoil isn’t something to fear. It’s the greatest opportunity for you to leapfrog to financial freedom. You can’t win by sitting on the bench. You have to be in the game. To put it another way, fear isn’t rewarded. Courage is.

The message is clear: the greatest danger to your financial health isn’t a market crash, its being out of the market. In fact, one of the most fundamental rules for achieving long-term financial success is that you need to get in the market and stay in it, so you can capture all of its gains. Jack Bogal pits it perfectly: ‘Don’t do something – just stand there!”


Based on more than a century of financial history, you now understand that corrections, bear markets, and recoveries follow similar patterns again and again. Now that you have the power to recognise these long-term patterns, you will also have the power to utilise them.

The 7 freedom facts have taught us that winter is always followed by spring – a lesson that will allow you to proceed without fear. Or, at the very least, a lot less of it. Knowledge brings understanding, and understanding brings resolve. You won’t be the person who pulls your money out of stocks when the market is being slammed! You’ll be the one who stays in the game for the long haul, planting seeds, nurturing them patiently, and then reaping the harvest!

Source: Unshakeable, Tony Robbins & Peter Mallouk (Simon & Schuster)

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