The markets are experiencing their first market correction in about 1,000 days. Here’s what you’ll want to keep in mind as you contemplate your portfolio’s volatility right now.
First, stock market corrections happen fairly often, on average about once a year. The current market has been doing better than average by that measure. If you own stocks in your portfolio at all, it will experience the effects of these corrections periodically.
Second, corrections are unpredictable. We cannot know ahead of time when they will happen or why, and we cannot prevent them. Selling stocks in anticipation of a correction is a fool’s errand. The investor attempting this will be wrong as often as right. And even if that investor happens to guess correctly when anticipating a correction, knowing when to buy back into the market is equally difficult and fraught with error.
Here’s the good news, though. Stock market corrections are normally shorter in duration than bull markets on the upside. They might last half a year or more – some last only a few weeks. This means if you are a long-term investor with a diversified portfolio appropriate to your financial situation, a stock market correction matters very little to you. Over the long term, the stock market has averaged about an 8% positive annual return, and although historical performance is no guarantee of future results, this statistic does point in your favor.
Long-term investors with a coherent and prudent investment plan are in the best position they can be in. If you are working with me or with Amy, that plan is in place.