Investing your money in the stock market can seem a bit overcomplicated and scary. Especially if you pay attention to the stock market news, they love the doom and gloom articles about the financial markets. Seriously, take a look at any major player in the financial and stock market media, you’ll quickly find some negative articles at the top of the feed.
Many times, it’s about a pending bear market or maybe a current stock market correction. And sure, these stock market corrections can be a bit scary and intimidating (thanks media for the scares), but you can protect yourself and stay the course if you understand corrections further.
Below, I cover what a stock market correction is, how long a correction will last, and some investment strategy tips to stay sane during the madness that might ensue.
Also, even after you are armed with this knowledge, you’ll probably still make rash decisions. Much of this I learned early in my investing career and still panicked during corrections, so don’t feel bad if you make some mistakes.
Breathe and check your emotions
Simply breathe and ignore the markets for the day if you see negative numbers flashing and start to think logically. Easier said than done, but you need to avoid emotional investing.
If you panic sell (or buy) too quickly into the correction hype, you’ll probably make rash investing decisions that you will later regret.
This may take some mental training on your end, but learn to leave any of your emotions at the door and take some deep breaths before pulling any selling or buying triggers.
Avoid reading the major investing media
Many articles in the investing and finance world are negative, because that type of press sales and gets the clicks.
But the thing is, these “doom and gloom” articles dominate during stock market corrections. Hell, I’ve seen them while writing this article talking about an impending crash and stalls in economic growth!
It’s okay to be informed and understand what is going on in the markets. But all the negative and click-bait headlines can drive you to make poor investing decisions. Seriously, I found myself not knowing what to do because I was so enamored with the scary headlines in my early investing days. It’s a media trap!
Do your own due diligence
Similar to being cautious with the media, do not blindly trust anyone’s advice about a stock market correction or what to do. That could be a writer, financial guru, friends, family, etc. Certainly getting advice can be a good thing, but don’t act on any advice without doing your own research on what you might have heard.
No one truly knows what or why the stock market correction is happening, so their advice may cost you money or future gains. With anything, you should never blindly follow along without understanding the advice.
Have some cash ready to buy
When stock market corrections happen, this can be a golden opportunity to buy. Sure, you won’t be able to predict the exact lowest share price of equities or bonds, but it can be a great time to buy more shares.
One of the best things you can do as you invest over the years, is leave a portion of money in cash. When stock market corrections happen — or “go on sale” — you are prepared to buy while others are panic selling. As much as I cheer for bull markets, I enjoy a good stock market correction to re-up on great index funds.
Ask yourself what type of investor you are currently
Pending where you are at in life, your investing style may reflect on what you do or don’t do during a stock market correction.
For example:
- Long-term investor? Stick to your plan and practice dollar cost averaging.
- Short-Term investor? Be more prepared to sell or buy. Essentially you’ll be on your toes to take action.
- Close to retirement? Your investment account should already be conservative and balanced, but make additional protections to ensure your money is best protected as possible
Continue to prepare and expect future corrections
Even when the economy and the stock market is in a great bull run, you should always be prepared and expect more stock market corrections. Based on the data I shared about earlier, it’s inevitable that it will happen again.
You won’t be able to predict the exact day or reasons why, nor will you know how long it will last. Instead, all you can do is know that it will happen, practice the tips above, and be mentally and financially prepared.