A Stock Market Correction Will Happen
A stock market correction is defined as a decline of at least 10% in a major market index. It is inevitable. It will happen. The last major pullback occurred 17 months ago. Timing such an event, however, is very difficult.
The S&P 500 Index1 has undergone 38 corrections since 1950, or one every 1.87 years, according to the Motley Fool/Yardeni Research.
A market pullback is usually caused by an unexpected event. The ‘tremor’ that triggers a correction can originate at home or overseas.
How should I react?
Recognizing such an event will eventually occur doesn’t always reduce the anxiety that may ensue when stocks experience heavy volatility.
But don’t panic. Decisions made during uncertainty are rarely profitable.
Avoid the temptation to slash your exposure to stocks. Many who do this usually sell near the bottom and find themselves chasing the market higher.
Investor’s corner
Since 1974, the S&P 500 has risen an average of over 8% one month after hitting the bottom and more than 24% one year later, according to the Schwab Center for Financial Research.
Developing a long-term, highly diversified investment plan has historically been the best approach to creating long-term wealth and achieving one’s financial goals.
The plan doesn’t eliminate risk but helps manage risk. In addition, your financial roadmap helps reduce the desire to react emotionally during a selloff.
Remember, it’s not about timing the market, but time in the market that creates sustainable wealth.
Created 2021-08-04 19:19:01
