Stock market fluctuations often create anxiety, but historically, patience pays off. Those who endure the ups and downs can see significant rewards.

Recent market movements have prompted numerous descriptions, but rather than excessive creativity, we need clear definitions and perspective on terms like crash, correction, and dip.

  • A stock market crash refers to a rapid and severe drop in stock prices. This usually means a decline of more than 10% in just one day. The U.S. market, represented by indexes such as the S&P 500 or the Dow Jones, has faced major one-day declines around six times historically.
  • A stock market correction is a gradual downturn occurring over days, weeks, or even months, with a drop of roughly 10% from the previous year’s peak. Since 1950, nearly 40 corrections have been recorded.
  • A dip or pullback is when a stock experiences a decline of 5% to 9.9%, just shy of that correction threshold. Such fluctuations can occur multiple times in a day, especially for volatile stocks.
  • A bear market is identified when stocks finish a trading day at least 20% lower than their previous year’s peak. This was notably observed when the World Health Organization labeled COVID-19 a pandemic, which disrupted the economy. Conversely, a bull market signifies a prolonged period of rising stock prices.
  • A recession reflects broader economic conditions, not solely stock market performance. It is defined by two or more consecutive quarters of negative GDP growth. Market fluctuations can influence a recession, and downturns can also result from economic slowdowns or crises.

While none of these situations are pleasant, they are all part of the economic cycle. History shows that after every market dip, crash, or recession, recovery and bull markets follow.

What’s the Duration of This Market Turbulence?

This is a great question. Although past performance isn’t a guarantee of future results, it offers valuable insight.

If you had $100,000 invested in the S&P 500 before some recent market downturns, staying invested could have significantly benefited you by the end of 2018.

Source: NerdWallet

Staying the course is essential, though it can be challenging when watching your investments decline. Current conditions feel especially harsh given the lengthy period of prosperity we've witnessed.

After checking my 401(k) balance recently, I experienced what investment strategist Liz Ann Sonders describes as the “puke phase.”

I quickly closed that tab and reminded myself that doing nothing is often the best strategy. While it’s normal to feel anxious, the key is to remain patient. That money is meant for long-term growth—at least another decade. I've diversified my investments to mitigate risk, ensuring not everything reacts the same way. Plus, I’ll keep making automatic monthly contributions, effectively buying stocks at lower prices.

Ultimately, the stock market will continue to behave as it has historically—causing short-term stress but rewarding those who endure. Just remember to refer back to historical returns in moments of uncertainty.