The Crosstown Bus

By Paul R. Ruedi, CFP®

It has been a rocky month for stocks. As I write this the Dow Jones Industrial Average has declined just over 10% from its peak and is officially in “correction” territory. The S&P 500 index hasn’t officially entered correction territory as I write this but is right up against it. But what is interesting about this correction is the outsized reaction we have seen from investors.

Case in point, my wife. My wife has been investing for over a decade. She lived through the pandemic decline that pushed the stock market down over 30%. She lived through the year 2022 when the stock market decreased by double digits over an entire calendar year. She lived through the tariff-induced decline of just over 20% last year. But lately when she looks at her investment accounts she gives me the nervous report: we are down by a lot! In response to a relatively small decline (so far). 

Why the nervous reaction from investors for something that shouldn’t really be considered such a big deal? Perhaps it is because this decline has more or less been caused by a new war in Iran. Perhaps it is because many of the most recent large declines recovered so quickly they didn’t leave a lasting impact. For whatever reason, people are seemingly a little too excited about what is a relatively small drop. 

I think this is an important time to remind investors we get a peak to trough decline of 10% or more almost every year. They show up so frequently we often refer to declines of this magnitude as the “crosstown bus” on our radio show. Not only that, much larger declines of 20% or 30% happen regularly as well. 

Declines are not something you might live through as an investor. They are something you will live through as an investor. You need to be mentally prepared to stay in your seat for them. But we also shouldn’t wish them away, as the unpredictability of stock returns is the entire reason stocks provide returns to begin with. If there was no risk, there would be no return. 

Investors must be ready to put their emotions to the side and stick with their investments during temporary declines. If this decline has bothered you, consider it a dress rehearsal for the real thing: a decline of an even greater magnitude that doesn’t recover quickly. If your response to this most recent decline suggests you won’t be able to get through that yourself, you may want to consider working with a financial advisor.

Paul R. Ruedi is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.