Markets experience both short-term declines and severe collapses. Knowing the difference helps investors avoid panic.
**Market corrections**
– Defined as a 10–20% decline from recent highs.
– Give buying opportunities.
– Examples: S&P 500 corrections in 2011, 2018, and 2022.
**Market crashes**
– Driven by panic selling.
– Crashes trigger economic fear.
– Examples: independent bank analysis 1929 Great Depression, 1987 Black Monday, 2008 crisis, 2020 COVID crash.
**How investors should react**
– In corrections: stay calm, focus on long-term goals.
– In crashes: preserve capital, rebalance portfolios.
**Key differences**
– Corrections are short and healthy.
– Crashes cause systemic shocks.
– Crashes are rare events.
**Conclusion**
Corrections and crashes are challenges every investor faces. By understanding them, investors stay disciplined.
