Many Aussie investors would be feeling the pinch after the recent ASX 200 decline.
Australia's benchmark index entered correction territory briefly this week before slightly bouncing back.
A new report from Betashares has explored how long similar falls in the past have taken to recover.
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What is a correction and how often do they happen?
A market correction is a short-term drop in stock prices – usually defined as a decline of 10% or more.
A bear market usually involves a decline of 20% or more.
According to Betashares, falls of more than 5% happen roughly once a year on average.
Of those that reach 10%, just over half go on to become deeper declines, although the risk is lower when the economy is not heading into recession.
Hans Lee, Senior Finance Writer at Betashares, said the most recent comparable moment was Liberation Day in April last year, when Trump's tariff announcement sent the ASX down 15.8% peak-to-trough in a matter of days.
It recovered fully within weeks.
Before that, investors experienced a 35% fall in the Australian share market in just five weeks during early 2020. Markets recovered to pre-crash levels just 13 months later.
History offers some reassurance here. Markets price fear faster than they price recovery – which is why making significant decisions on instinct tends to produce worse results than sitting tight.
Why is the market falling?
The ongoing conflict in the Middle East is the main catalyst of recent declines.
However unlike liberation day sell-offs last year, the current fall is having more direct impacts to the economy.
Last year, when President Trump announced widespread tariffs, markets reacted quickly, and priced in this fear before any real economic impact was felt.
This was a classic example of markets reacting more to expectations and uncertainty than to immediate, measurable economic damage.
In contrast, the current conflict is resulting in higher oil prices. These feed directly into inflation, complicating the picture for central banks.
The RBA raised rates again earlier this month fearing inflationary pressures from the impact of higher oil prices, while the US Federal Reserve signalled it's in no hurry to cut rates any time soon.
Is this likely to persist?
According to Betashares, history says there is a good chance the conflict is short lived.
Research by Hartford Funds found that historically the S&P 500 was higher one year after the onset of conflict 73% of the time , with average one-year returns in the high single digits. Oil-driven shocks can take longer to resolve, but history still favours patience over panic.
Chief Economist David Bassanese's base case is that a negotiated resolution remains the most likely outcome. But markets are waiting for confirmation and, until they get it, volatility will be the default setting.
Is now the time to buy?
Here at The Motley Fool, we are long-term focussed.
With that framework in mind, a 10% decline to Australia's benchmark index is a chance to top up your portfolio at a relative value.
It's important to remember that short-term volatility is likely to persist. There's no guarantee of a quick resolution to the current conflict in the Middle East.
However as Betashares research points out, over the long-term, markets like the ASX 200 will recover, and eventually steam ahead.
If you are looking for broad exposure to the ASX 200, here are a few ASX ETFs to consider:
