What to know in case of a stock market plunge

The return of Fomo - fear of missing out is fuelling concern that the market may take a tumble.

Strong earnings and an overall downward trend in inflation have helped fuel a surge in the S&P 500 that few would want to miss. But with much of the index's 30 percent rise over the past 52 weeks stemming from just a handful of stocks, such as artificial intelligence play Nvidia Corp, some market watchers fear there may be a melt-up unfolding.

Thinking through the potential impact of a drop can help guard against making any rash moves. So here's what to keep in mind.

MARKETS TEND TO RECOVER QUICKLY

To keep market drops in perspective, Mr Sam Stovall, chief investment strategist of CFRA Research, suggests using stock market history as "virtual Valium".

"What amazes me is how long people think it takes to get back to break-even from a correction, or from a decline of 10 per cent to 20 per cent," he said. "Most people would say 'years', but on average, it takes about four months." The speed of market bouncebacks argues against trying to time the market. Also, with market timing, you have to be right both on when to get out and when to get back in.

DOWNTURNS ARE NORMAL

Just as hitting new highs is normal for a well-functioning stock market, so are downturns.