Normal distribution

The symmetric, bell-shaped distribution defined by its mean and standard deviation, in which about 68% of observations fall within one standard deviation of the mean, about 95% within two and 99.7% within three.

If annual equity returns were normal with a mean of 12% and a standard deviation of 18%, about 95% of years would fall between minus 24% and plus 48%. Many risk models start from that assumption because it makes the arithmetic easy.

Market returns aren't normal. They have fatter tails, so large falls happen far more often than the curve predicts, and they cluster in time. A one-day fall of five standard deviations should almost never happen under the normal curve, and markets have produced many of them. Use the curve for intuition and the historical record for risk.

In the tails, the curve is wrong.