Stomach-churning stock market sell-offs are normal🎢

This may be the most important truth about investing in stocks

Market volatility is normal. (Source: Getty Images)

Historically, the stock market usually goes up, even in periods that follow very strong gains.

It’s also been the case that the market experiences a lot of bouts of volatility on its way up.

However, 2021 was an unusually calm year for the stock market. Even as the S&P 500 surged 27% during the period, it experienced just one pullback greater than 5%. (The S&P fell by 5.2% from its September 2 high to its October 4 low.)

This is not normal, and it’s something investors shouldn’t get used to.

Big sell-offs are normal

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news.

For instance, consider a 5% sell-off in the stock market. It may unfold over several days, but it’s the kind of thing that comes with newspaper headlines reporting that the Dow Jones Industrial Average is down 2,000 points from its high. It makes you think the bull market may be over and that it could take years before you recover any further losses you may incur.

However, 5% plunges are quite common in the stock market. In fact, the average year since 1950 saw three such sell-offs. Check out the chart below from LPL Financial, which shows the frequency of these sell-offs each year.