A market correction is the decline of stock prices by 10% or more. This happens because of factors such as economic growth and major events in society. Since a correction’s triggers vary, they may be difficult to predict and track. This phenomenon can last for a couple of days, weeks, months, or longer.
Although corrections are normal, they can still be stressful. So, if you are investing, it’s best to understand what to do when this happens. Here are some tips on handling stock market corrections:
- Avoid Trying To “Time” the Market
When you encounter a correction, do not panic and try to time the market using methods like swing trading. This method is used to gain short to medium-term gains by buying and holding stocks for a day up to a week. Although swing trading may gain you some money, it is risky and time-consuming.
Aside from potentially resulting in more losses than gains, swing trading is also less beneficial if you’re looking to invest long term. So, when corrections happen, it’s best to just ride it out.
- Choose Your Investments Wisely
Having a balanced investment is ideal during market corrections. A way to achieve this is through asset allocation. This strategy involves investing in various types of assets, such as equities, fixed-income, and cash equivalents. Since they have distinct aspects in the market, you can adapt better and minimize huge losses.
In asset allocation, it’s important to consider your goals and risk tolerance. Aside from that, the number of risks your investments have will probably change over time, so it’s best to make regular adjustments to your portfolio.
- Have an Emergency Fund
Whether or not there are significant changes in the market, having an emergency fund is important in investing. Not only will it save you during personal or family emergencies, but it will also protect you from potential losses during a market correction. This is also especially helpful if you’re nearing retirement.
Speak With a Financial Expert
Learning how to handle stock market corrections, especially if you’re about to retire, is crucial. If you need more help with risk mitigation strategies, talk to a professional. Mark Lamkin has formed a group of experts who can help with your financial planning needs. Call us today at Lamkin Wealth Management in Louisville, KY for more information.