What’s Stock Market Correction And When Do You Need To Take Action?
Even if you don’t spend your time reading The Wall Street Journal or watching CNBC, you’ve probably heard about how stock markets have seen or are experiencing big drops. These have happen, happen, and will continue to happen. Consider them part of the game.
Karolina Decker, Founder and CEO of FinMarie on stock market corrections:
“Over time, there are always going to be ups and downs in the market, but if you are putting money in every month, you shouldn’t be overly concerned with near-term or even medium-term volatility. Time is your friend!”
But in order to keep calm in times of turmoil, you need to know your fair share of insight on stock market correction. So, here’s what you need to know about a stock market downturn.
Stock Market Correction Definition
We talk about stock market correction every time indexes drop by 10 percent or more from a current high. It’s a way of the stock exchange to correct and balance itself. And even though drop rates of a minimum of 10 percent can, indeed, be scary and cause concern, especially among private investors and investment rookies, it may reassure you, hopefully, to hear from our FinMarie experts that stock market correction isn’t nearly as a bad or worrisome a thing, as you might first consider it.
1. The More Diverse Your Portfolio, The Less Need To Worry
The one and only and absolute golden rule of investment is to not put all eggs in one basket. Different companies, sectors and asset classes diversify your portfolio and create a good buffer, if times get rough. FinMarie makes sure, that you call a well-diversified portfolio your own, in order to avoid large losses.
Especially, if you don’t need to touch your investments for five, ten or more years, you’ve got plenty of time to ride out this market downturn benefitting from a long-term cost-average effect.
Still, stock exchange drops might be a good opportunity to take a look at your investments and rebalance your portfolio, if the recent volatility has thrown your asset allocation out of whack.
2. Only Invest Your Surplus To Stay As Save As Possible
Each investment involves the risk of loss, so do not start investing your basic income. First put away the emergency fund – a minimum of 3 months of your monthly net salary. Only with surplus you can start investing.
Also, you should sit down with a financial consultant to have her run the numbers and make sure that you’re on target with your savings plan and that your asset allocation makes sense.
3. Set Your Goal And Choose An Investment Strategy
The strategy needs to correspond to your goal. If your goal is long-term, it is worth adding “milestones”, i.e. intermediate goals.
As part of the strategy, you need to determine
- which markets you want to operate in,
- how to analyze the market, and
- how much time you want to spend on active investment management.
Remember: if the chosen strategy does not meet your objectives, something is wrong with either your strategy or goal.
FinMarie is happy to help you out on setting your investment goal and strategy that meets your needs. We’ll accompany you all the way and offer you a free first assessment to kick your investment goals off. Why don’t you check in with us?!
4. Keep Your Calm And Stay Patient
Give your investment a chance. Most of the time your investment will change very slightly, some days it will lose in value, others it will gain in worth. Remember that the further the investment horizon, the more profitable it is to take the risk.
The best way to make sure to purchase stocks when they’re at their lowest point is to consistently invest: set up a savings plan and you won’t have to worry about what the stock markets are doing, rather than risking to forget to contribute.
Get more financial insights and tipps on our blog and in our community. Join the FinMarie Facebook group now and subscribe below for more news and info!