Once a market correction happens, there are strategies you can follow to help bounce back. What exactly is a market correction? A stock market correction is when the market falls 10%. A “bear market” is defined as a 20% drop. These times can be very uncertain for investors, however, 27 of the last 36 years have ended positively with an average rate of return of 11.4%. Often, the quick response is to remove oneself from the volatility, but history has proven the importance of staying the course, being patient and remaining for the long haul.
If you happen to have lost a significant amount in the market during this time, it is important to not panic and not react. Easier said than done, right? Hopefully, you have a plan in place that you can fall back on – one that provides you with the confidence to weather the storm. If you react, you are doing so based on emotion rather than facts and research. The strategies listed below are recommendations to help stay the course during a market correction:
1. Keep Perspective
If you are a long-term investor, it is important to think about the future and not react in the short term. A decline in the market can be very upsetting and stressful, but it is important to keep your perspective and understand that over time, the stock market has recovered and has been able to provide long-term investors with favorable results.
2. Practice Self-control
Often during this time, individuals stop adding to their 401(k), but in actuality, this is the time to continue adding and if possible, to increase your contributions. Practice self-control and stay committed to your long-term investment plan.
3. Do not try to time the market
The individual investor has no chance of timing the market – it doesn’t work. Usually what happens is when the market goes down, people inevitably panic and sell. When the market goes back up, people buy. Buying high and selling low won’t provide sustainability and security for long-term investments.
4. Consider hiring a financial professional
There are many trustworthy and qualified financial professionals with backgrounds in investment and retirement strategies. Just like you may be apt to do research on hiring a contractor for a home project, the same holds true for a financial advisor. Interview and do your research so you find an individual you feel comfortable working with. It is important to have a well thought out investment plan based on your needs and wants for your future. Everyone’s situation is extremely different, therefore, it is important to create and develop an investment plan which caters to your individual lifestyle.