Investment markets have been incredibly generous to global equity investors over the last two years. Following a testing period of flat markets and surging inflation, the S&P 500—widely regarded as one of the world’s premier stock markets—delivered a remarkable 24% gain in 2023 and another impressive 23% in 2024.
Considering historical average returns of around 8-10%, these are exceptional outcomes that disciplined and patient investors will surely be quite please with.
What’s even more noteworthy is the relative calm of the past two years, with no prolonged downturns to shake investor confidence. In 2023, the steepest drop was just -10%, lasting from July to October. In 2024, the most significant dip was an 8% decline over 21 days between July and August.
While this period of market calmness has been a welcome relief for many, the financial media will have been disappointed as it thrives on drama. More seriously though, there’s a danger that investors will forget the important lessons learnt from past declines.
To prepare you for the possibility of more significant declines in the coming year, we outline a few points below that you should keep in mind when others are losing theirs.
What You Should Know
Markets don’t move in straight lines. They zig and zag around an upward trajectory. This natural ebb and flow is what we call “volatility.”
A market correction, defined as a 10% drop from a recent high, sounds dramatic but is far more common than most realise. In fact, corrections occur about as often as birthdays, with years like 2024 being rare exceptions.
Since the year 2000, the average annual market decline has been approximately -16%. While that may sound unsettling, it’s worth remembering that around three out of four years still close with a positive return.
And then there are the bigger drops—declines of over -30%, which tend to happen roughly every five years. The last instance? 2020.
How You Should React
The stock market’s long-term growth story includes its short-term setbacks. Those temporary declines are the price you pay to enjoy the permanent rewards. In fact, it’s those very dips that make the market’s overall gains possible. The key is to embrace this reality rather than fear it.
Trying to predict when these fluctuations will happen—or when they’ll reverse—is a game no one consistently wins. Successful investing requires humility and acceptance of the market’s unpredictable nature.
Market declines are an inevitable part of your investing journey. How you choose to react to them, however, will shape your financial future. The most effective response? Face them with calm confidence and recognise the opportunities they bring.
Time Heals
What happens in the next year matters far less than what happens over the next 30. If your investment horizon is measured in decades, the odds are firmly in your favour.
After two years of relative calm, a market decline in the months ahead would simply mean you’re earning future returns. For those still building their portfolios, such declines are actually a gift—allowing you to buy more shares at lower prices.
While we can’t predict where the market will land by the end of 2025, we’re confident about where it’ll be in 10 years: much higher. Time is the ultimate antidote to market volatility, and fortunately, time is something most investors have in abundance.
If you’re looking to build a resilient investment strategy or simply want reassurance about your financial goals, now is a great time to reach out. Let’s ensure you’re positioned to make the most of the opportunities ahead.
Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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