It’s hard not to panic when that happens. And it’s tempting to react and want to pull back.1
Some people give in to that temptation.
Informed investors don’t.
Because they know most market corrections are short.
In fact, over the past 70 years, corrections have been getting shorter and shorter. These days, the average correction is over within four months.2
Those are just a couple of reasons why you shouldn’t panic over corrections. Below are more.
If you know these facts about corrections, you can keep a level head and healthy perspective whenever the markets retreat. That can help you avoid overacting. It may even open your eyes to new opportunities.
Corrections can cool off overheated markets before they head into "bubble" territory. They can also help savvy investors pick up solid investments at bargain prices.
A stock market correction happens when an index like the S&P 500 falls 10% or more from its high. Though stressful, corrections are an inevitable, natural part of the market cycle.4
Since 1950, there have been 37 corrections in the S&P 500. On average, that's a correction every 1.86 years.2
GREED can cause investors to irrationally chase performance while fear can cause panicked selling when markets turn.
OVER-OPTIMISM during upswings can mislead investors into taking on too much risk, priming markets for a retreat.
UNCERTAINTY around political, economic, and/or natural events can alarm markets, tempting investors to pull back.
Scary headlines get attention and make the media money. Tune out the noise and focus on your goals—not theirs.
Corrections are periods of high market volatility, and the good days and bad days tend to cluster. If you panic and sell, you're likely to miss some of the best days of market performance.4
When markets fall, investors usually pull back at the wrong time. If they reenter, it's usually well after a rebound window has closed.
You chose your investment strategies to support your needs and objectives. Market turmoil doesn't change that.
No one likes losing. And no one’s immune from it. In the inevitable correction, that can be a rough reality.
But it’s not the end of the story. Correction panic doesn’t have to upset your portfolio.
You’re smarter than that.
Remember, you chose your investment strategies to support your needs and objectives. Market turmoil doesn’t change that.
Solid financial plans are designed with the Storm in mind. Like we say very often, the markets don't go up in a straight line. We have Good markets and we have Sour Markets. Whenever we design a plan, we create it to survive both those good times AND those sour times.
During a market decline, that can be hard to keep sight of—especially when you don’t know if you’re dealing with a short-term dip or a prolonged pullback.
So, what should you do when markets retreat?
Take a deep breath.
Don’t trip over yourself trying to make sudden moves. Ignore the media hysteria.
If you’re feeling nervous, turn off the TV. Stay off the internet.
Then, remind yourself that market corrections are normal and healthy. We know that statistically a market correction is always just around the corner.
It happens just around 1 time per year, almost each and every year.
Markets are volatile because they respond to the news of the day. News is unpredictable, so doesn't it follow that the markets will be unpredictable, too?
It doesn't matter how true that fact is - truth doesn't make it enjoyable.
It's how you choose to respond to the volatility that determines how successful you are with investing.
Have you ever seen or heard of those giant redwood trees in Muir Woods, just north of San Francisco?
Some of those trees stand over 250 feet, but they don't grow the same amount every year. In fact, these trees don't grow at all in some years!
Remember, every one of them was a tiny seedling at one point. Time and patience grew them into giants. The same is true with money.
Successful investors don't look at their net worth every day because they know there's no point. Investing is a long game.
Ultimately, what you don't want to do is make a snap decision because of emotions and pull out the chainsaw to cut down your tree too early. If that were to happen in Muir Woods, none of those trees would have grown to be the giant redwoods they are today.
Remember, history shows us that corrections and recoveries come unannounced.
If you can stay calm and can see past the temporary shakeups, you can potentially be in a much better position to enjoy the eventual recovery.
This is of course assuming you have a plan because if you don't have one, the first step is to get one. And if you don't have one, you can call us.
Our team is always here to help you survive both good and sour markets no matter whats happening in Washington or Wall Street!
Nick and Jerry Royer Group 10 Financial, LLC
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