Percentage vs. Panic: Understanding What a Market Correction Really Means

A 5,000-point down day sounds like the end of the world, but the market doesn’t speak in feelings. It speaks in percentages, history, and expectations. We sit down with Jeff Bingham to translate what a market correction actually means, why it tends to show up “like clockwork,” and how to keep your decision-making grounded when your screen turns red and the headlines get dramatic.

We walk through simple, practical definitions: what counts as a dip (less than 10%), what officially becomes a correction (10% or more), and where a bear market begins (20% or more). Jeff explains why corrections can be constructive, how markets are constantly forward-pricing the future, and why the same scary move can look very different depending on whether you focus on points or percentages. We also talk about how often corrections show up over time, what an average correction looks like, and why a down stretch doesn’t automatically erase a long-term plan.

Most importantly, we get tactical about investor behavior and portfolio design. Jeff shares how we separate short-term money you may need soon from long-term money meant to grow, outpace inflation, and protect purchasing power years down the road. If you’re a news junkie or a novice investor, this conversation is built to give you calmer footing, better language, and a clearer signal when the noise gets loud.

If this helped you, subscribe for more plain-English investing guidance, share it with a friend who’s stressed about the market, and leave a review so more people can find the show. What market headline triggers you the fastest?

To learn more about B&H Wealth Strategies visit:
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Securities and advisory services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak and B&H Wealth Strategies are not affiliated. http://www.finra.org/ http://www.sipc.org/

Transcript

Welcome And Seasonal Check-In

SPEAKER_00 0:03

Welcome to the Four Seasons Podcast, brought to you by BH Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here, we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect, and enjoy your wealth. Ready to turn your financial dreams into reality? Dare to dream. And now, here's your host, President of BH Wealth Strategy, Jeff Bingham.

SPEAKER_02 0:43

Market corrections can feel alarming, but they're often a normal part of long-term investing. Jeff breaks down what is really happening beneath the headlines. Welcome back, everybody. Skip Moni here, co-host slash producer back in the studio with president of BH Well Strategies, Mr. Jeff Bingham. Jeff, how have you been this week?

SPEAKER_01 1:02

Skip, I've been good. How about yourself?

SPEAKER_02 1:04

I've been I'm doing great. It's hard to believe we're moving into fall already or starting to head in that direction, but that's okay. I like it a little cooler anyway.

SPEAKER_01 1:14

Well, yeah, I expect we've got some more hot weather, but yeah, it is hard to believe that we're already into the uh gosh, I guess we're finishing the first week of August. That is incredible if we sit here in a 40 day on. But it's also that means it's uh almost football season again. So that's right. Roll time.

SPEAKER_02 1:34

Football time in Tennessee. You bet. So um Jeff, it's always good to sit down with you and and get the deeper uh picture of investing and and and finances in today's

What Market Corrections Really Mean

SPEAKER_02 1:47

world. Today's topic is market corrections and what they really mean to the average investor. Please walk us through how you define a correction and why does it matter?

SPEAKER_01 1:58

I'm gonna start by asking everybody out there a question. If the market fell at 5,000 points today, would you sleep well tonight? My clients, I think, typically will sleep well. The reasons why that is are are are many, but basically we we prepare for this, right? We talk about these things. We know that um when the screen turns red, the headline screen more is going to come behind this. My clients don't panic. They know they can pick up the phone and call me. They know we've gone through this for you know the 60 years that we've been around as a business. I've been doing this for 35 years myself. So we've seen these things before. My job, my work with my clients, the conversations that I have in this room with them are about, you know, separating the news from the noise or the noise from the news and finding the appropriate signal. So again, they can always pick up the phone and just ask Jeff, you know, what's what's going on. We're also built for this. We build our portfolios and we've been doing this for years. We are always, you know, we are always trying to make money, but we build for protection and participation strategies. So we're built on a rock, not on the sand. So the winds are not going to blow us over. So we know they're gonna come and go, right? The market corrections are gonna happen. But we are built to stand through this. And again, what I always tell people is that, and this is what happens, even with those things in mind, if people know that we're in this fight with them. They can always pick up the phone and call 423-247-1152 and just ask me, just ask Jeff what's going on. Is this something that I need to worry about? Is this something that we're gonna get through? You know, don't let it, don't let it fester. But we are here. We have been standing through these things with our clients for, like I said, I've been doing this for over 35 years. We've been standing with our clients, you know, for 60 years. You know, market corrections are basically the toll, if you will, that is paid for the long-term results that you get out of markets. And so, but when you put together, as we're as we're talking about being built for these things, you have money that is in the short term that you need to get to, right? And so that money is is safe and secure. It is built on a different, in a different structure, if you will, than the longer-term money, which is trying to grow and keep pace with inflation, beat taxes, and make sure that you're protecting your purchasing power in the future. So that's what that's the way we've been built. That's where we are, that's how we stand through these and have been doing this for 60 years now.

SPEAKER_02 4:51

Well, uh apparently, you know, it it as you said, it's it's kind of normal. How uh how normal is is a market correction?

SPEAKER_01 5:02

Yeah, if you look back really over the last hundred years, but uh but certainly over the last 36 years now, uh there is no there they come along like clockwork. The problem is you don't know what time on the clock, but if you look at a calendar every 12 months, you know, every 12 months, you're going to see a market correction. That's by historical measurements. So again, it is it is the price that you that you pay, if you will, for long-term results, the toll that's there. But in most of those corrections, and we'll I'll talk about what a correction is and what we how we define that in a minute, but most if they happen once a year, like clockwork, markets are also positive most of those years, right? So they finished the year in the black, even though there will be some red during the course of the year.

SPEAKER_02 5:54

Hmm.

Dips Corrections Bear Markets Defined

SPEAKER_02 5:56

Very interesting. And to what level, I mean, I I'm sort of a novice at this, is which is um the reason I enjoy talking with you, is I learned a lot. Define what uh uh a uh what what defines a market correction is as far as like what parameters, how big of a dip, or talk about that.

SPEAKER_01 6:16

Oh, you use a you you you actually hit on a couple of things right there. You use the word dip. That was uh what I'll say. A dip is we would defined a dip, I'll start there, right? The kind of the smallest pullback, let's say, or turn down. A dip is going to be less than 10%. So a dip might be five to eight percent, right? So, and those again happen with great regularity. I mean, you know, you can in in volatile moments, think back to March of this year, we'll touch back on that in a moment, or April of last year when the tariffs were announced. I mean, we would see, you know, we would see it when uh in those days you would might see a three to four percent dip in a day. You know, that's not a correction. A correction is defined by definition is 10% or more, right? 10% or more. If you go up and you touch 20%, that's where you hear the term bear market. That's officially where a bear market begins by, you know, kind of academic definition would be a 20% or more. The the frequency and the average of those, again, I said once a year for market corrections for the last 36 years now. Um, and the average correction is actually minus 14%. Uh, but again, I point out most of those years, even with a minus 14, you know, correction that falls in the correction, the market finishes in the black for the year, you know, and again, once a year. I mean, market, um, you know, bear markets happen on average about once every six years. So that's kind of the, you know, dips. I mean, you you could have you're gonna have multiple dips during the course of the year. We've had them all year long. We got a market that's sitting at at red record territory. Corrections, again, are are also the norm, not the exception. A year when we don't have a correction, that pullback at 10% or more is really an outlier more than it is uh, you know, it more than it is the norm, right? That is the norm. So, and they think back just in the most recent memory that we have, using the SP 500 as the as our proxy to measure the market width in March of this year, as the war started in Iran. Uh, we the SP didn't touch, didn't go down 10%. It was down a little over 9%. And keep in perspective, from that low at down 9% from peak to traw, at roughly 9%, we are 19% above that low right now. So again, almost a correction. They're normal. The signal is still strong, right? It wasn't signaling weakness in the economy and in the markets. We're built for this right now. The market's back up. You know, it's plus 19 from the bottom, you know, and we're plus, you know, double digits on the year right now. So, you know, you can just kind of see that's where you really have to uh that's where I always go back to just to ask Jeff, right? You want to kind of dig through these things. We're doing this podcast to try to get information out there to folks to try to have them have some understanding, but also, you know, kind of get some comfort and uh, you know, through this so they don't, you know, have that panic moment when they see the the screen turn red, because surely it is going to again. Uh like I said, like clockwork. But we we stand in the in that in that moment shoulder to shoulder with our clients. You know, we've, if you will, we, you know, we try to instruct, we teach, we counsel all the way through these things with our folks.

SPEAKER_02 9:52

Very good. Well, speaking of that, what if you could think of one misconception that people have about corrections, um, and you the the one thing that you wish

Misconceptions And The Noise Problem

SPEAKER_02 10:05

people understood better, what would it be?

SPEAKER_01 10:08

Ah, it's a great question. I, you know, I think I I think one thing it's it's the frequency and it, you know, that that that they occur with, right? That they're they're normal. They're really a, you know, like any, I mean, think about a correction. Think about just what the term correction means. You know, something's not right, something's not working exactly right. Maybe we've gotten a little up ahead of ourselves. The word correction, you know, means that we're checking where we are right now. We need to look at this. So it's not a, even the word itself is not necessarily a negative term, although we kind of think of it as a negative term. It can be instructive, right? I think a correction in the market is a bit uh of is is constructive to kind of see has the market gotten too far ahead of itself from a pricing standpoint, right? The what we call the valuations. In other words, you know, we're looking at these record highs right now as an example, you know, and I'm not saying that there's gonna be a correction, that's not what I'm saying, but you look at these, at these right now, and if we see a correction and the underlying fundamentals necessarily haven't changed, then is it just the market checking itself, correcting itself for a moment to say, uh, are we too far ahead of where we should be? You know, is this pricing right? Because the, you know, the the market is a forward pricing thing. It's not really, does it price in the current, it prices in the future? So again, a correction says, uh, maybe the pricing that we're thinking about in the future is not quite there. That'll be an interesting thing when we'll talk about, you know, AI and things of that nature as we talk maybe in another podcast, uh, thinking about what that looks like and those pricing mechanisms. So again, I think it was a long-winded answer, and I'm sorry for that. Um, but I think what I would want people to know is that these this is normal, right? These happen with great frequency. And a correction is not the end of the world. A correction is not a bear market, a correction is not a crash. I mean, I think people today get so inundated, right? The at wherever we're getting our news from, whether it be you know traditional television CNBCs of the world, or whether we're getting it in podcasts, or whether we're getting it in some, you know, whatever form we're getting it in, Twitter, uh, whatever, uh, or X, I guess it is, um, it, you know, we automatically hear these numbers and they're so the numbers are so big right now. I mean, because you can say, I mean, a 10%, I mean, a 10% correction using the Dow Jones industrial average as at 53,000 roughly where the Dow is right now, that if I is the first question I asked, if the market went down 5,000 points today, would you be okay? That technically wouldn't even be a correction, would it? It wouldn't get quite to the 10% level. But that 5,000 number would absolutely freak people out, right? And so that's where when we when we're working with our folks, our clients, we have to keep in perspective the numbers. I mean, we just throw these, the numbers are so big now. $40 trillion worth of debt. When we talk about it, you know, we used to talk about millions, and then we started talking about billions, and now we talk about trillions. These numbers are so big and so staggering that they're they're overwhelming to people, right? We just kind of get numbed to all these types of things. However, where it comes back very real from that numbness is Dow Jones Industrial Average drops 5,000 points today. Is that possible? Yes, it is, right? That would make it very real for people. That is red on the screen. That is red in your portfolio, that is headlines coming at you from wherever you're getting them from that says more to come, more to come, more to come. And that's where you have to break into separating noise and finding signal.

SPEAKER_02 13:56

Well, I gotta tell you, I feel a little more comfortable as a novice investor, and uh, I'm a news junkie as well. So it kind of freaks me out. So I appreciate all the well-defined information, and I do feel more comfortable. Hope, hopefully, our listeners do as well. And if not, and it does drop

Building A Portfolio For Storms

SPEAKER_02 14:15

5,000 points tomorrow, what do you do? You call Jeff.

SPEAKER_01 14:18

Call me. Like I said, you you want to, you know, hopefully, like I said, and I think I can I can safely say this, our clients do, I mean, I've been through this, they've been they've been through these battles, right? And these are battles or wars or whatever you want to call them. So the storms, if you will, that are out there. And there are more storms to come. So if you've got to be able to get to to know that you have a portfolio that is constructed to to survive the the strong winds, that it's built on a rock, that if you have money that you need to get to in the short run, that it is in the right positions, that it is not subject to that 5,000 point draw, right? If if you need that money because you have different structures that you have. But that long-term money that you've got, that growth, that inflation protection, the one that's gonna beat taxes and inflation over time, it's gonna continue to buy the things that you need 5, 10, 15 years from now, that that money does need to grow, but it is going to have uh moments where it's gonna it's gonna hit these headwinds that are that are certainly looming out there. Uh and it's generally it's okay, uh, you know, because it's it's not it's not unusual. And that's where the calm, you know, advice, counsel, and uh partnership, right, uh, that we have with our clients.

SPEAKER_02 15:44

Amen, brother. Well, Jeff, thank you so much for breaking all that down. Again, I feel more comfortable. Hopefully our our uh listeners do as well, and uh we'll look forward to talking more about this in the next episode.

SPEAKER_01 15:57

Sounds great, Skip. Thank you very much.

Consultation Offer And Closing

SPEAKER_00 16:03

Thanks for tuning in to the Four Seasons Podcast, brought to you by BH Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretire.com. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc. member FINRA SIPC, BH1 Strategies and Silver Oak Securities Inc. are not affiliated.