Here's What You Need to Know About Market Corrections
What’s the number one mistake investors make when markets decline?
Panic selling
It’s an emotional reaction to the sting of a correction.
And it usually trades one problem for another—it replaces fear with seller’s remorse.
You can avoid all of that if you know the facts about market corrections.
MARKET CORRECTIONS HURT. THEY CAN COME OUT OF NOWHERE. AND WHEN THEY DO, THEY IGNITE FEAR, AMPLIFY WORRIES, AND SET OFF ALARM BELLS.
It’s hard not to panic when that happens. And it’s tempting to react and want to pull back.
Many people give in to that temptation.
Informed investors don’t.
WHY?
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.
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.
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Seven Things You Need to Know About MARKET CORRECTIONS
Corrections Aren't Always Bad for Markets.
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.
2. A Market Correction Isn't a Crash. Don't Panic.
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.
3. Think Market Corrections Are Rare? Think Again.
Since 1950, there have been 37 corrections in the S&P 500. On average, that's a correction every 1.86 years.
4. Factors That Usually Contribute to Market Corrections:
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.
5. Media Headlines Will Tell You the Sky Is Falling During a Correction.
Scary headlines get attention and make the media money. Tune out the noise and focus on your goals—not theirs.
6. In a Market Correction, Don't Panic and Sell.
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.
7. Why Average Investors Get Hurt by Market Corrections.
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.
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https://www.cnbc.com/2020/03/22/why-long-term-investors-should-never-sell-stocks-in-a-panic.html