The stock market is a fascinating place. It is ever changing and evolving, full of peaks and valleys. While the market volatility may seem like a big deal to some investors, it's important to remember that the market has experienced multiple corrections, peaks and valleys, over the years—and each one has led to new highs for investors. The current market is normal and could certainly have more in store for investors as it plays out.
Market corrections can be uncomfortable, but they are a part of the investing process and cannot be predicted.
When the stock market has been rising steadily, it is only natural to want to buy in because of the psychology of FOMO (fear of missing out). Many investors get trapped into thinking that the market will never come down and will always be rising. However, when a market correction happens (and they always do), many investors will react in fear and sell at the wrong time (when prices are relatively low).
What is important to remember is that market corrections can’t be predicted and can happen at any time. Even if you think you know when one might occur, you won’t be able to react quickly enough because there are too many variables involved. Why? There are simply too many participants in the market that are buying and selling and it becomes next to impossible to predict what will happen next.
Market corrections are normal, so don’t panic. The best thing you can do is stay calm and focus on your long-term goals. You may have to make some short-term adjustments — like increasing cash reserves or buying bonds instead of stocks — but the overall strategy should remain unchanged. This is why a financial advisor can help implement a financial plan to help guide you in ANY market condition.
Corrections are not a reason to panic or change strategies.
- Don't change your strategy. Despite the volatility we've seen in the market lately, corrections are not a reason to panic or change strategies. In fact, they're just as good an opportunity to buy as any other time. If you have a long-term plan for investing in your retirement account, stick with it!
- Don't sell. As we've said before: market corrections are not crashes; they're just natural market fluctuations that come and go with regularity. You don't need to panic when there's a correction on Wall Street—just don't sell until you're ready!
The best time for you to invest is when your portfolio is diversified, and your retirement account can handle volatility. If you have a long-term plan for investing in your retirement account, stick with it! Don't sell. As we've said before: market corrections are not crashes; they're just natural market fluctuations that come and go with regularity.
You don't need to panic when there's a correction on Wall Street!
Just because you're a long-term investor doesn't mean you should expect a straight line upward for your portfolio.
Just because you're a long-term investor doesn't mean you should expect a straight line upward for your portfolio. The stock market will correct itself from time to time, which can be frustrating if you're looking for steady growth, but it's important to remember that corrections are normal and shouldn't necessarily cause you to abandon your investment strategy.
Here are some reasons why:
A correction is when a stock market index, like the S&P 500, declines by at least 10% from a recent high point. Corrections are considered part of the normal up-and-down movement of a market and are not cause for panic or drastic changes to your portfolio.
The current correction is normal and could certainly have more in store for investors as it plays out.
The most important part about a market correction is that it's not a reason to change your long-term investing strategy. It’s also not an excuse to panic or sell when the stock market drops.
Here are three key things you should do as a result of these recent market declines:
- Rebalance Your Portfolio
- Evaluate Your Risk Tolerance Level And Investment Goals
- Understand How Different Assets Behave In Volatile Markets
Rebalance Your Portfolio
A market correction should be the time to rebalance your portfolio. Since most investors tend to keep their assets in equities, it's likely that a decline in stock prices will have an outsized impact on your portfolio. A balanced asset allocation with low-risk bonds helps mitigate that impact by providing stability during times of volatility.
Evaluate Your Risk Tolerance Level And Investment Goals
A market correction is a good opportunity to evaluate your risk tolerance level and investment goals. Developing an asset allocation strategy that's right for you can help reduce the effect these declines have on your portfolio. If you're retired or close to retirement, it's likely you'll want more stability in your investments.
Understand How Different Assets Behave In Volatile Markets
It's also important to understand how different assets behave in volatile markets. For example, high-yield bonds have a higher historical volatility than investment-grade bonds. This means they can be more sensitive to market changes, so you may want to consider adjusting your portfolio accordingly if you hold one or both of these asset classes.
It's important to stay calm and remember that stock market corrections are normal and not something to panic about!
It's important to remember that stock market corrections are normal, and not something to panic about! If you're an average investor, then it's best not to pay too much attention to the daily fluctuations of the market. Instead, focus on your long-term goals, revisit your financial plan and make sure that everything is still on track.
If you can't afford any losses right now then it might be a good idea to consider selling some of your stock holdings while they're still high in value so that you can reinvest later when prices drop again once this correction is over—and hopefully rebounding even higher than before!
If all else fails and those lost profits are still bothering you too much there are always other options available like talking with a financial advisor or planning ahead by contributing more each month into an RRSP account instead so that when inflation occurs later down the road we'll have more money invested rather than less!
The stock market is a great place to invest, but it's not without risk. We've seen this recently with the correction that happened earlier in the year and continues today. But as long as you stay calm and remember your long-term goals, you'll be able to weather any storm!
If you have any questions, please feel free to reach out to us. We can help guide you, create an easy to understand financial plan and offer prudential guidance that can help you have financial peace.
Investment advisory and financial planning services offered through Kiaros Advisors, LLC, a registered investment advisory firm. Insurance services offered through Peter Kisver are independent of Kiaros Advisors, LLC. Kiaros Advisors, LLC does not give legal or tax advice.