When markets fall, it’s easy to forget that downtrends are part of the investing cycle. So when prices slip, it's a good time to review some common terms that you may be hearing that describe today’s financial markets.
The first is “pullback,” the mildest form of a drop in the markets. You might hear a market commentator refer to a dip of 5% to 10% after a peak as a pullback.
The next term is “correction,” which is used when markets drop 10% to 20% after a peak. Then there is a “bear market,” where the drop is 20% or more since the last peak.
When prices are trending lower, it’s easy to second-guess yourself. But over the years, I’ve found that doesn’t help.
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The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Stock investing includes risks, including fluctuating prices and loss of principal.
The Cycle of Investing
January 31, 2022