Dealing With a Market Correction
A market correction is a 10% or greater decline in the price of a security. For most investors, they are scary and hard to deal with. In this article, we will go over 5 tips to help you deal with a market correction.
1. Understand What a Market Correction Is
The best way to deal with a market correction is by truly understanding what one is. It is typically a decline of at least 10% in a stock, bond, commodity, or index. They help to correct overvaluation of securities. This prevents their value from becoming unstable due to how high it is. They happen more often then you might think. According to Deutsche Bank, market corrections occur at least once a year. So, if you are an investor, having to deal with one is inevitable. But proper planning will help you get through them successfully.
2. Understand Risk
To deal with a market correction it is also vital that you understand risk. Every type of investment carries some level of risk. So if you decide to invest you need to prepare yourself for the potential of risk, or bad things happening. Having a balanced perspective will help you to keep any strong emotional responses at bay and calmly ride through the correction.
3. Don’t Sell Right Away
Many people want to sell their securities right away when they see their value dropping. They may feel by selling they are saving themselves from even more loss. But this is not the case. It is important to remember that your portfolios true profitability is not seen in the short term. Rather, it is seen over a long-term period of time, which may include many market corrections. When you decide to invest, you need to be prepared for the dips and be ready to wait them out. Having a knee-jerk reaction to sell ends up costing you more in the long run.
4. Don’t Check Your Portfolio Daily
Checking on your portfolio every day can be very stressful, especially during a market correction. It is important to remember that you need to think long term. This will mean riding out money market highs and lows. Refraining from checking your performance everyday will help you keep a bigger picture view and not get caught up in the small day to day changes.
5. Utilize an Investment Advisor
Having an investment advisor can help you to keep the clear perspective that you need. An investment advisor manages the day to day stresses so that you don’t have to. They also have extensive knowledge of the market. This allows them to build a portfolio for you that will weather the storms and give you a strong, consistent, long-term return.
Successfully Riding Out a Market Correction
It is possible to successfully ride out a market correction. If you plan and have the proper understanding of how the market works, it will help you keep from having a reaction that you will later regret. Utilizing a financial advisor can also help you to deal with a market correction. Do not wait until one happens, you should begin preparing now to increase your chances of success.
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