Corrections, Bear Markets, Etc… Should We Care?

Written by the William Allan team · Published 2025-07-23

There’s the old saying, “All good things must come to an end.” For many people, a falling stock market invokes that sentiment. A correction commonly refers to a decline of at least 10% from a recent peak, while a bear market usually refers to a decline of at least 20%.

But are the good times over? The label alone cannot answer that question.

What Market History Can Tell Us

Declines and recoveries are part of US stock-market history. Their frequency and duration depend on the index, dates, and counting method used. Corrections do not arrive on a predictable schedule, and an average duration cannot tell us when a particular decline will end.

For an investor deciding what to do today, the useful lesson is to build a plan that can withstand declines. A recovery may take longer than expected, and an individual company may never recover. A broad market’s experience is not a promise about a particular portfolio.

Lower Prices and Real Risk

A decline can create opportunities for investors with suitable cash flow and risk capacity. It also creates losses, which may be permanent. Lower prices can reflect a weaker business outlook rather than an attractive valuation.

Investors still need to evaluate fundamentals, diversification, liquidity needs, and the price paid. Someone adding money over many years faces different decisions from someone making withdrawals to cover living expenses.

Staying Invested Requires a Suitable Plan

It is difficult to know both when to exit a market and when to return. Selling after a decline can mean missing a subsequent recovery, but staying invested also means accepting the possibility of further losses.

The point is to align the portfolio with the investor’s objectives and capacity for risk. Investor.gov’s asset-allocation guidance explains why time horizon and risk tolerance matter to that decision.

In the past, I’ve written about time in the market versus timing the market. A long horizon can give an investor more flexibility to weather a decline, but time alone cannot make an unsuitable investment safe or assure a positive return.

So, should we care about corrections and bear markets? Yes: enough to prepare for them, review the plan, and make considered decisions rather than assuming every drop is an automatic buying opportunity.

This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.