The Power of Healthy Stock Market Corrections

It may come as a surprise, but market corrections happen fairly often. It’s normal for the economy and stock/bond markets to naturally go through peaks and valleys over time. Try your best not to panic when a market correction happens. Despite the sharp drop in the stock market in early 2020, by the end of 2021, we still seem long overdue for a sustained market correction; such a correction is probably inevitable. Remember, we typically experience a correction, defined as a 20% drop in the market, once every 55 months (4.5 years).

Highs and lows in the market will always occur. Some common causes for a market correction are economic indicators, political and geo-political factors, valuations in various asset classes, environmental and weather factors, or “disruptions” such as new technology and technical trading. 

While it’s normal to be nervous, frustrated, or upset when your account value decreases, try not to let your emotions get the best of you. When it comes to investing, it’s important to stay calm.

Next Steps 

1. Know your timeline – when will you need funds? In 5 years, 10 years, 20 years? Determine how many of the market ups and downs you are willing to stomach.

2. Make sure you are invested in the right mix of stocks, bonds, and cash for your specific needs. 

3. Don’t worry if and when a market correction happens – you will be well prepared if you complete steps 1 and 2!