However, if your foray into share investing is part of a longer-term strategy, you\u2019ve got a more difficult decision to make.<\/p>\n
If you\u2019re in this camp, you\u2019ll presumably want to re-enter the market when all this blows over.<\/p>\n
That means you\u2019ll not only need to decide whether now is the right time to bail, but also when you should get back in.<\/p>\n
We usually think of a correction as a period when the sharemarket falls more than 10% from a recent peak.<\/p>\n
For the S&P 500 index in the US, there have been 12 such occasions since 2000.<\/p>\n
The average decline across all 12 has been 20.8%, with an average duration (from top to bottom) of eight months.<\/p>\n
Four of those 12 corrections have turned into a bear market, which is generally considered a decline of 20% or more.<\/p>\n
Three of those came after US recessions \u2013 during the dotcom crash of 2000-02, the GFC in 2007-09 and the pandemic-related lockdowns of 2020.<\/p>\n
The fourth came in 2022, when the US Federal Reserve lifted interest rates from near-zero to a 20-year high of 5.50% in the space of 18 months.<\/p>\n
That was in response to high post-pandemic inflation, and although no recession was declared, it was a very challenging period.<\/p>\n
The sharemarket falls were much bigger in those four examples, whereas the other eight brought an average decline of 15.3% with an average duration of four months.<\/p>\n
The first point to note is that these periods come quite frequently, so we need to get used to them.<\/p>\n
In rough terms, a correction is likely every two years and every third one of those might turn into a bigger decline.<\/p>\n
History also tells us that when things turn from slump to recovery, they can turn very quickly.<\/p>\n
In the first month after the bottom, the average return across those 12 examples is 13.2%.<\/p>\n
After three months it\u2019s 24.9% and after 12 months 35.8%.<\/p>\n
Unless you\u2019re extremely good, you won\u2019t recognise a market bottom until it\u2019s behind you.<\/p>\n
That means by the time you jump back in, you\u2019ll have missed a fair whack of that rebound.<\/p>\n
Financial markets look forward. <\/p>\n
They take all the information at hand, form a collective judgment about the future, then factor that into today\u2019s prices. <\/p>\n
Right now, prices are reflecting increasing challenges on the horizon, even though we haven\u2019t seen all of those show up in the economic data or earnings releases just yet. <\/p>\n
Higher fuel costs, slower economic growth, rising inflation and the potential for tighter monetary policy \u2013 that\u2019s an ugly combination, which is why investor sentiment has turned negative.<\/p>\n
It\u2019ll be the same on the way back up, and the trough will come long before we see firm evidence of a clear path ahead.<\/p>\n
The US market fell 18.9% after last year\u2019s tariff announcements, but the decline started well before \u201cLiberation Day\u201d on April 2.<\/p>\n
The market bottomed just four trading days later and started recovering, long before the actual impact of the tariffs had time to feed through.<\/p>\n
It\u2019s impossible to predict if the conflict in Iran will subside or reignite, or to pinpoint how markets will react.<\/p>\n
At some point markets will stabilise and then recover, as they always have, and nobody rings a bell to tell you when that is.<\/p>\n
Whether you get off now or stick around for the ride is up to you, but first consider what you\u2019re trying to achieve and if you\u2019re good enough to also get back in at the right time.<\/p>\n
You might be better off to strap in and stay put.<\/p>\n