A stock market correction can be scary. You might not be able to resist the urge to check your brokerage account every few minutes. Unfortunately, all you’ll probably see are red numbers. The business newspapers might be full of missed earnings and layoffs. Here are some tips about making it through a stock market correction.
Learn the Immediate Lessons
It’s essential to learn from your mistakes, or you’re bound to repeat them. If you’re worried about having your electricity shut off next month because of the stock market underperforming, you’re doing something wrong.
Before investing in the stock market, you should have an emergency fund. It should have at least six months worth of expenses. The funds should be put in a savings account.
Additionally, maybe you took on too much risk this time. A correction is a 10% loss (while a bear market is 20%). This is a relatively small number and shouldn’t set off a panic. Next time, don’t put so much into stocks with a lot of volatility or use too much leverage.
Be aware that it’s Temporary
If you’re a long-term investor, your strategy is to buy and hold. The small bumps in the road shouldn’t concern you. If anything, it could be a buying opportunity.
If it helps, look at graphs of previous bear markets. The market eventually recovered from the Great Depression and the Great Recession. It will in time as well, but you have to be patient. Avoid panic-selling.
Corrections Happen All the time
Get used to it. There is tremendous fluctuation in stock market performance. It’s very jittery, and any sort of bad news can send it into a spin. Corrections happen regularly. You might be feeling butterflies in your stomach, but this one will toughen your mind for the next one.
Be Aware of Risk
You should always be aware of your risk profile. You shouldn’t be surprised that your tech-heavy portfolio was hit hard in a correction. Next time, you might want to balance it out with more consumer stocks. A utility or two wouldn’t hurt either.
By creating a diversified portfolio, you can better insulate yourself against corrections. If you just hold REITs, your holdings will perform poorly if there’s a real estate crash.
Stock market corrections happen regularly. It’s not a question of if, but when. Investors need to prepare themselves and learn from their mistakes. Without risk, there can not be a reward.