As is almost always the case, whenever the markets experience a downtown, many investors press the panic button. In part, this mode is activated because people tend to worry about the future prospects of their investments and how that might impact their retirement package.

According to  Monica Dwyer, the top financial honcho at Harvest Financial Advisors in Ohio, people normally overlook the numbers and make rush decisions on investments based on how they feel inside. She shared that while this behavior is perfectly understandable, it is not wise since emotions can cause on to miscalculate when making decisions.

Dwyer added that logic goes out the window during moments like this when terms like “recession” and “bear market” are on everyone’s lips.

To know how to make the right judgment call, it’s imperative to have an understanding of the terminologies involved. Usually, investors tend to have a gander at two key figures, the S&P 500 and the Dow Jones Industrial Average, in order to acquaint themselves with the stock market.

At present, many experts in the field have expressed the belief that a market downturn is long overdue. While that may be true, the term typically affects U.S. equities. Only on the rare occasion does it have a ripple effect on international funds, bonds, and commodities.

In most scenarios, investment portfolios get diversified according to different asset classes. As such, changes in the stock market may not necessarily heavily impact your investment portfolio.

The Breakdown

Pullback

As divulged by Eric Walters, a financial guru at SilverCrest Wealth Planning, the term pullback is often used to describe share price drops in the range of 5-9.9% from the highest price point.

Data compiled by Guggenheim Investments shows that since 1945, the market has witnessed 78 pullbacks. On the other hand, 27 corrections and 8 bear markets have happened in that window. The decline rates for the two have been 13% and 27% respectively.

Correction

This refers to a drop of about 10% from a recent peak. Addressing Journalists, Abe Ringer, the financial adviser of Breakwater Financial, shared that corrections and pullbacks occur more frequently than full bear markets.

Ringer mentioned that in the contemporary scene, there are many doomsayers who have prophesied about a looming financial crisis bear market. While he refused to rule out the possibility of such a thing happening, Ringer noted that such massive declines are quite improbable.

Bear Market

When the market experiences a 20% drop from a recent high, the phenomenon is described as a bear market.

However, that shouldn’t be grounds for you or any other investors to panic. Walters went at length in explaining that as frightening as the term bear market sounds, investors need not worry because there’s little chance all portfolios are involved in those equities.

Given the broad spectrum of equities in the markets, from international, mid-cap, to large-cap, it’s quite feasible that they fluctuate uniquely. In essence, this means that as some underperform, others may actually be registering soaring numbers. Walters stressed that these changes should not be interpreted to mean that an economic recession is imminent.

The CEO of Family Wealth & Pension Management, Ian Weinberg, pointed out that the media and Wall Street have played a big role in talking up the odds of a bear market happening.

Weinberg highlighted that recently, the markets went up and down by about 1,000 points and there was a notable 5 percent swing. He then went ahead to reflect that such performances are open to interpretation. For some, that scenario represents a bear market in the flesh. To others, it’s just a fluctuation.

In the end, Weinberg concluded that such summaries are open to interpretation depending on who you trust. He, however, noted that whenever bear markets are said to be in the horizon, many investors act out.

Recession

This term is quite broad since it takes into account how a country is fairing economicallIt’s not always about the investments made. It is important to note that whenever recessions happen, there’s a good chance for the stock market to fall. At the same time, the vice versa is true. Recessions can be triggered by the simplest of financial crises.

With the right lingo, it’s going to be easier to find your bearings in the financial world.

In 2008, a financial crisis was experienced around the world as a result of the collapse of the real estate and mortgage bubble. Still, there are some who opine that the stock market crash led to the Great Recession happening.

Realized and Recognized Losses

Realized losses refers to the net amount of money people lose. On the other hand, recognized losses is a term used to describe the financial impact on paper. Once the losses become real, they cease being recognized and become realized losses.