The word “correction” sounds healthy and necessary, as if there’s a fully justified rebalancing of something that’s out of proportion. Yet, when a stock market correction is happening in real time, it can feel scary and unwarranted — and it may seem like the correction will inevitably devolve into a full-on crash.
There are ways to protect yourself against market crashes, and playing defense makes sense when the financial markets get shaky. This is especially true in a midterm election year, as market drawdowns aren’t unusual during midterms.
On the other hand, living in a constant state of dread isn’t the best mindset for building wealth over time. Instead of fearing stock market corrections, you can choose to understand and even embrace them as opportunities can arise from deep drawdowns.
10% Pullbacks Aren’t Very Rare
To start off, we can define a correction as a decline in the S&P 500 index of 10% or more from its most recent high. If the drawdown reaches 20% or more, then it’s not just a correction; it’s considered a bear market.
Using the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) as a proxy, we can see that deep drawdowns have occurred on a regular basis since the early 1990s. Historically, we can go back even further in time and conclude that S&P 500 corrections, while unpleasant for unprepared investors, aren’t very rare.
If we include the correction from early 2025, there have been 27 10%-or-deeper S&P 500 corrections since November 1974. Given that 1974 was 52 years ago, we might calculate that there’s been a market correction approximately once every two years.
Don’t get the wrong idea here. These corrections don’t happen like clockwork; you shouldn’t assume that there will be a 10% S&P 500 drawdown just because it has been a couple of years. The “approximately once every two years” calculation is really just a rounded average.
Still, there’s a lesson to be learned and it relates to patience. If you missed out on a previous correction and recovery (such as the once that took place in 2025), don’t fret as another correction and buy-the-dip opportunity will inevitably occur in the future.
Don’t Fear the Bear
As an investor, you may have experienced the roughly 50% stock market drawdown of 2008 and 2009. That bear market needed time to recover fully, and its memory lingers in the minds of some reluctant traders.
Thus, when an S&P 500 correction occurs, it raises the specter of the Great Recession and its accompanying market crash. Indeed, it’s possible for any run-of-the-mill 10% correction to morph into a bear-market drawdown of 20% or worse.
However, just because it’s possible for a correction to become a full-on crash, this doesn’t mean it’s probable. Out of the 27 S&P 500 corrections since 1974, just six of them turned into a 20%-or-worse bear market.
Even when a bear market and/or recession occurs, it won’t always turn into a 50% crash like what happened in 2008 to 2009. During the recessions of 1957, 1960, 1980, 1981, and 1991, the average S&P 500 decline was 20% and the index, on average, recovered in one to two years.
As for corrections that don’t become bear markets, the time frame for a rebound probably won’t be counted in years. In fact, the average recovery time from an S&P 500 correction of 10% to 20% is just eight months.
Calmer Minds Will Prevail
When looking at the long-term chart of the S&P 500 ETF shown above, fearful minds will focus on the pullbacks and crashes. That mindset may cause investors to panic-sell at the worst possible time and incur unnecessary financial losses.
There’s another way to view that chart, though. After each and every correction in recent memory, the stock market eventually recovered and S&P 500 ETFs continued to pay dividends.
That’s the calmer, glass-half-full perspective that will serve investors well over the long term. By observing that the overall trend of the S&P 500 is to the upside, you can stay calm and stay in the trade when the going gets tough.
Granted, your overall portfolio strategy may need to be more defensive if you’re in or nearing retirement. If you’re on a fixed income, waiting out a stock market correction or crash might not be an ideal option.
It’s perfectly fine, then, to take defensive measures such as diversifying your portfolio beyond S&P 500 stocks. That’s not undue fear; it’s just adapting to your specific needs and circumstances, which is quite sensible.
And regardless of your time frame, you might consider purchasing a few S&P 500 stocks and/or funds during a correction. As long as you don’t over-invest, you will likely profit in the end as market pullbacks aren’t destined to last forever.