Volatile stock market graph

Market Corrections

Market corrections can cause great angst, uncertainty, and fear.

During these times, maintaining proper perspective is essential to making good investment decisions.

Three perspectives I have found helpful are:

  1. Be prepared for negative news.  There has already been talk of a bubble bursting and headlines promoting the “worst ever start” to a year.  These kinds of superlative headlines occur frequently, even in years when we have strong market performance.  They are not predictive of future market performance.
  2. Corrections are normal market events. Market drawdowns of more than 10% occur frequently.  Even bear markets (market down 20%) occur routinely.  In fact, since 1990 we have experienced seven bear markets – two of which the market got cut in half.  Despite these painful, yet temporary losses, the S&P 500 was up 13x during that period.
  3. Corrections provide opportunities.  Downturns provide opportunities for investors to sell low or buy low…to their detriment or benefit.  These provide wonderful opportunities for patient and disciplined investors to take advantage of the impatience and impulsiveness of others.

Living through increased uncertainty and declining markets can be difficult.  These perspectives can help you think through the situation and remain true to your investment plan.  And if that doesn’t work, you can always choose to not look.

Indices are unmanaged and are not available for direct investment.  Past performance is no guarantee of future results.   Index returns include the reinvestment of dividends but do not include adjustments for brokerage, custodian, and advisory fees.  The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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