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OCTOBER 2015
Great-West Capital Management, LLC (GWCM) Research Note
Market Corrections and the Long-Term Investor
With the current market volatility, investors might find themselves on edge when it comes to their portfolios, leaving them
unsure of what measures they should take to avoid enduring losses. The recent 10% decline in the S&P 500® Index during the
month of August may have increased concerns, especially when considering the fact that we haven’t experience a correction
of 10% or more since October 2011. Although a 10% drop can certainly be seen as significant, these drops actually occur more
often than one might think. Since 1946, there have been 31 drops in the market that were 10% or more.
S&P 500® Index
Growth of $1,000 from 1965-2015
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: Morningstar® DirectSM GWCM Analysis. Past performance is not a guarantee of and may not be indicative of future results.
The above chart shows the S&P 500® Index over the past 50 years. Despite a total of 41 market corrections of 10% or more during
this period, this chart illustrates how an initial investment of $1,000 increased more than 100 times to $106,829.
Furthermore, if we look at the most significant market corrections that have taken place over the past 50 years, we notice
the following periods: January 1973-October 1974 (crash of 1973), March 2000-October 2002 (dot-com bubble), and October
2007-March 2009 (financial crisis). These periods represent bear markets, with an overall market decline of 20% or greater. The
following graph shows each of these periods and the returns an investor would have received had they invested $1,000 at the peak
of each of these declines through September of 2015. These three scenarios generally represent the three worst case scenarios for
investors over the past 50 years.
1 Source Market Watch; accessed 10/5/2015; http://www.marketwatch.com/story/5-things-you-need-to-knowabout-this-stock-market-selloff-2015-08-25
2 CNNMoney; accessed 10/5/2015; http://money.cnn.com/2015/07/28/investing/stocks-correction/
S&P 500® Index
Growth of $1,000 During Crash of 1973: Year 1973-1974
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
1973
1978
1983
1988
1993
1998
2003
2008
2013
Source: Morningstar® DirectSM; GWCM Analysis. Past performance is not a guarantee of and may not be indicative of future results.
This first example shows the S&P 500® Index down 48% from January of 1973 through October of 1974. Investors would have
recovered their losses by March of 1976, just 17 months following the low of the market correction, and would have experienced a
10-year return of more than 6% had they remained invested. By September 30, 2015, the value of the initial investment would have
grown to $60,256.
S&P 500® Index
Growth of $1,000 During Dot-com Bubble: Year 2000-2002
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2000
2002
2004
2006
2008
2010
2012
2014
Source: Morningstar® DirectSM; GWCM Analysis. Past performance is not a guarantee of and may not be indicative of future results.
The second example depicts the dot-com bubble, with the market peak in March of 2000 and the low in October of 2002—a loss
of nearly 49%. As you can see, investors who invested during the peak and waited out the correction would have recovered their
losses by October of 2006 and experienced a nearly 73% return through September of 2015.
S&P 500® Index
Growth of $1,000 During Financial Crisis: Year 2007-2009
1,800
1,600
$1,473
1,400
1,200
1,000
800
600
400
200
0
2007
2008
2009
2010
2011
2012
2013
2014
Source: Morningstar® DirectSM; GWCM Analysis. Past performance is not a guarantee of and may not be indicative of future results.
The third example depicts the financial crisis that occurred from 2007-09. Here, the market peaked in October of 2007 and
bottomed out in March of 2009 for a total loss of 47%. Investors who got in during the peak of the market and remained invested
throughout the recovery would have recovered their losses by March of 2012—only three years later—and experienced a 47%
return through September of 2015.
These three worst-case scenarios help illustrate how individuals who were able to remain invested throughout market corrections
were able to recover their losses. Although the time it takes for markets to rebound varies, the longest it took for an investor
to recover their losses due to a correction over the past 50 years was four years. In every case, investors had recovered
losses from a correction within four years. While market corrections still remain a concern for most investors, those following a
disciplined approach may be best positioned to achieve their long-term retirement goals.
The opinions expressed in this material represent the current, good faith views
of GWCM and its portfolio managers, analysts, traders and other investment
personnel at the time of publication and are provided for limited purposes, are not
definitive investment advice, and should not be relied on as such. The information
presented in this report was developed internally and/or obtained from sources
believed to be reliable; however, GWCM does not guarantee the accuracy,
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Any forward-looking statements speak only as of the date they are made, and
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statements. Forward-looking statements are subject to numerous assumptions,
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materially from those anticipated in forward-looking statements.
Past performance, where discussed in this report, is not a guarantee of future results.
As with any investment, there is a potential for profit as well as the possibility of loss.
This material is not an endorsement of any index or sector and not a solicitation to offer
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A benchmark index is not actively managed, does not have a defined investment
objective, and does not incur fees or expenses. Therefore, performance of a fund
will generally be less than its benchmark index. You cannot invest directly in a
benchmark index.
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