Should You Worry About a Market Correction?

This month marks five years since the dramatic COVID market downturn. On March 9, 2020, the U.S. stock market plummeted nearly 8% in a single day. However, before one could barely blink we experienced the fastest market recovery in over 150 years—just four months later, the market had fully rebounded.

There's lots of uncertainty swirling in the market; tariff troubles, DOGE staff reductions, and indications of stubborn inflation. What should an investor do? 

Key Lessons from Recent Market Corrections

1. Stock market recovery timelines are unpredictable. No one could have anticipated that the COVID crash would recover so swiftly, while the late 2021 downturn took much longer.

2. Staying invested pays off. Investors who resisted the urge to sell in panic saw their portfolios rebound—and even grow—as the market recovered.

Historically, the stock market has always recovered from downturns, though the severity and duration vary.

How Common Are Market Corrections?

Market declines of 10% or more are inevitable. Looking at historical data, former Morningstar Director of Research Paul Kaplan analyzed U.S. stock market returns dating back to 1871. His research identifies 19 bear markets (defined as a decline of 20% or more) over the past 150 years.

Despite these declines, a dollar invested in 1871 would have grown to $30,711 (adjusted for inflation) by early 2025—showcasing the power of long-term investing.

Among the most severe market crashes:

• The Great Depression (1929): A 79% stock market drop, the worst in history.
• The Lost Decade (2000-2013): The dot-com crash and Great Recession combined for a 54% decline over 12 years.
• The 1973-74 Bear Market: Inflation, the OPEC oil embargo, Vietnam War, and Watergate scandal drove a 51.9% market decline.

Understanding Bear Market Severity

Kaplan’s "pain index" assesses bear market severity by factoring in both the depth of decline and the time required for recovery.

For example, the 1929 Great Depression had a pain index of 100%, while the Cuban missile crisis (which resulted in a 22.8% drop) was 28.2 times less severe. The 2021 market downturn, caused by inflation and the Russia-Ukraine conflict, ranks 11th in severity over the past 150 years.

Interestingly, the COVID crash ranks lowest in pain index due to its rapid recovery, despite its initial sharp decline.

The 5 Most Severe Market Crashes

To better understand how severe downturns impact investors, consider the fate of a $100 investment at the time of each market crash:

• World War I & Influenza (1911-1918): $100 declined to $49.04 before recovering post-pandemic.
• The 1929 Crash & Great Depression: $100 dropped to $21 by 1932, taking years to recover.
• The 1937 Recession & WWII: After a brief recovery from the Great Depression, the market fell again, bringing $100 to $52.49 before recovering in 1945.
• The 1973-74 Bear Market: Inflation and political instability reduced $100 to $48.13, with a recovery taking over nine years.
• The Lost Decade (2000-2013): The dot-com crash and Great Recession together reduced $100 to $46, taking 12 years to recover.

Lessons for Investors Facing Market Volatility

History teaches us that market downturns are inevitable, but recovery is also consistent. Investors who stayed the course after the COVID crash, the Great Recession, or even the Great Depression were ultimately rewarded.

While it’s impossible to predict market crashes or their recovery timelines, maintaining a diversified portfolio aligned with one’s time horizon and risk tolerance is the best way to weather volatility. By staying invested, investors can benefit from long-term market growth—even in the face of temporary downturns.