At various points in their careers, both Tiger Woods and NFL quarterback Alex Smith faced major setbacks that led many to question whether they would ever compete at the highest level again. Woods endured years of injuries and surgeries, while Smith suffered a devastating leg injury that threatened not only his career, but his ability to walk normally. Fortunately, the story doesn’t end there. Through patience, disciplined recovery, and a long-term perspective, Woods and Smith returned to competition at the highest level. Their stories serve as a reminder that temporary setbacks do not define long-term outcomes.
Investing in the stock market follows a similar path. Though investors often summarize the year with a single return figure, the path there is rarely smooth. These intra-year drawdowns can feel uneasy in the moment, much like a career setback in professional sports. However, history shows that volatility is not unusual and has played an important role in the long-term functioning of markets. Markets have repeatedly shown an ability to recover over time. Understanding this reality can help investors maintain perspective and remain focused on long-term goals.
What is an intra-year drawdown?
An intra-year drawdown is defined as the largest market decline in a calendar year from peak to trough. A drawdown measures the temporary decline experienced during the year, not necessarily where the market finishes by year-end. You may have also heard the term “correction” which refers to a market decline of 10% or more. “Bear market” is widely used to describe a decline of 20% or more.
Jon Sevenker, one of our senior advisors who writes our quarterly letters, explained why drawdowns are healthy for the market in our first 2025 quarterly letter titled Corrections and Philosophy.
“Stock market corrections are critical in laying the groundwork for future growth by burning off excesses. Resilient businesses and long-term investors often emerge stronger from market and economic downturns and stand ready to capitalize on the opportunities that follow. Over the last 25 years, the U.S. stock market and economy have experienced four bear markets, five corrections, and three recessions. But over the previous 15 years (2010-2024), the U.S. economy has spent only two months in an official recession…two months out of 180.”
Drawdowns Are More Common Than Many Investors Realize
Every quarter, we receive chartbooks from numerous Wall Street firms. Charles Schwab includes a graph showing annual stock market returns and the largest intra-year declines. The data reinforces an important point: significant declines can occur even in years that ultimately finish with positive returns. One of the most helpful ways to understand drawdowns is to look at how frequently they occur, even in positive market years.
The highlighted cells represent years when the stock market declined by at least 10% during the year but finished with a positive return. This has happened 15 times over the last 45 years, one-third of the time. The smallest intra-year drawdown was 3%, while the average decline was 14%. The median intra-year decline was 10%. In other words, stock market declines are normal and expected; they happen every year.
Market declines have historically created opportunities for long-term investors who remain disciplined and continue investing. Throughout history, the stock market has recovered from downturns and gone on to reach new highs over time. Is it possible this time is different? Yes, it’s possible. Is it probable? Historical market data suggests otherwise.
This table shows the percentage of the time the stock market was positive or negative over various rolling periods (data from 1896 to 2024). While short-term volatility can feel uncomfortable, the probability of positive outcomes increases significantly as the investment horizon lengthens.
Those are great odds in favor of investors: stocks are up 84% of the time over five years and 90% over 10 years. Even over one-month periods, stocks gain in value 61% of the time.
Just as Tiger Woods and Alex Smith faced serious setbacks and ultimately returned to compete at the highest level, investors will experience periods of volatility and decline along the way. Market pullbacks, corrections, and bear markets can be uncomfortable, but they have also been a consistent part of long-term wealth creation. Our role as your investment advisor is to help plan for these periods in advance, understand them when they occur, and stay aligned with the long-term strategy we’ve built together. There is a well-known saying in the investment world, “Time in the market is better than timing the market.” Maintaining discipline through drawdowns gives all investors the best chance to participate in the recoveries and new highs that follow. If you have any questions regarding volatility in the market, please reach out to your P&A advisor or connect with us.
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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.
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