Why volatility and downturns are part of investing
Stock investors find the volatility and downturns of market corrections unnerving. Chief Economist Joe Davis explains some of the reasons these market corrections occur and why they’re an integral part of the investing landscape.
Question (on screen): Why do market corrections occur?
Joe Davis: So why do market corrections occur? They're actually part of investing. They tend to occur, and when I say corrections, a decline of roughly 10% in the broad stock market. They could occur because of unexpected changes in inflation or interest rates. It could be disappointing earnings reports. But they're actually, again, part of the investing landscape.
I actually get concerned when we go through a considerable period of time when there's not market corrections because you have to endure that sort of volatility to actually earn the higher returns that the stock market has historically provided. And again, the corrections are different from say bear markets, which are down 20% or more for an extended period of time, which tend to be associated with recessions.
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