Market corrections (what you need to know)
Last week I posted a Video titled: Investors Who Panic. If you missed it, here’s the link. Corrections are anxiety-provoking.
Market Corrections make us wonder if we got it wrong. If we’re going to be ok.
What if this time is “different.”
The S&P 500 plunged “at unprecedented speed,” and this was the “worst point drop in history.”1
Should we give in and get out? Sit on the sidelines until it all blows over?
Nope.
Market corrections are completely, boringly normal. Unless you’re checking your account balances every 15 minutes.
Whether it’s an epidemic like the Coronavirus, geopolitical saber-rattling, natural disasters, or financial events, corrections happen regularly. They’re a natural part of the market cycle.
A Little History Lesson
- Markets experienced 26 corrections between 1946 and 2018.
- On average, markets declined 13.7% and took four months to recover.2
- To a long-term investor, a correction is a speed bump.
We can’t predict how long or how deep this correction will be, but we’ve been here before.
And markets have recovered.
Market Corrections are not something to panic about.
- Even when panicky headlines are everywhere.
- The 24-hour media cycle is all about stoking fears to draw eyeballs and shares.
The biggest mistake a long-term investor can make right now is to give in to the fear and make a big change in response to the selloff.
Emotional reactions to markets — whether it’s euphoria during a rally or anxiety during a correction — are deadly to long-term success as an investor.
It’s easy to answer a risk tolerance questionnaire and commit to a strategy when the market’s up.
It’s much harder to stick to the strategy when your portfolio drops. That’s when it’s gut check time.
But you can’t reap the rewards of long-term investing if you don’t take the bad days along with the good.
Your strategies need to be designed to withstand turbulent markets. Your overall investment strategy needs to be thoughtfully designed to pursue your long-term goals in all market environments.
I’m watching markets closely and I will be reach out if calculated changes to your portfolio are necessary.
Right now, I’d suggest doing 3 things:
- Take a deep breath and remember that you’ve got a professional behind the wheel.
- Trust the process and remember the conversations you had about your goals and the reasons behind the investment choices you made.
- If you’re experiencing anxiety
- turn off the news,
- stay off social media, and
- go do something fun.
If you or someone you know needs a pep talk or just wants to get an opinion on investment strategies, please reach out by phone to (832) 895–1700 or just reply to this email. I’m always happy to talk.
Investment Risk Review
Finally, as always I would strongly encourage you to take 5 minutes to review the risk you have in your investment portfolio. Simply go to KnowRiskInvesting.com and take the short risk survey.
- It’s Fast
- It’s Free
- It’s Fun
And, it will help you put in perspective the risk and the opportunity of investing for the future.
Until next time,
Jim
P.S. Please Share this post to anyone you know who might be worrying about the correction. You’ll be doing them a big favor. Too many people make emotional decisions in times like these, and it costs them.
- 1: The S&P 500 plunged “at unprecedented speed,” and this was the “worst point drop in history.”1
- 2: On average, markets declined 13.7% and took four months to recover.
- 3: Even when panicky headlines are everywhere.
This content has been prepared or is distributed solely for educational and informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any investment strategy. Past performance is no guarantee of future results. All investments involve risk including the loss of principal.
