What is a stock market correction and how does it impact my investments?

Written by Eric Ebbert CFP®, MBA

On October 10, 2021

A correction constitutes a decline of at least 10% in the value of a security like a stock. A correction can occur either to an individual stock, or the entire financial market. This is known as a stock market correction. It is important to note that stock market corrections are a natural part of the financial markets.

A correction in the stock market can cause worry for new investors. This is primarily because corrections can happen suddenly. There is no sure way to predict a correction since there are myriad causes that can trigger it. Furthermore, there is no entirely accurate way to predict when a correction will reverse, meaning an investor’s portfolio can be down for months or longer.

This situation can cause many new investors to panic sell. However, if you look at the S&P 500 over decades, you will find that the market rebounds eventually. This means that if you have a diverse investment portfolio like an index fund and are experiencing a market correction, your first instinct should not be to immediately sell your assets. This is the only guaranteed way to ensure losses. Instead, you should position yourself in a way that you can weather a correction without having to sell. This would preclude not overleveraging yourself with investments.

Ask a ProVise CFP® professional if your portfolio is threatened by a stock market correction 

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances to determine if you can comfortably ride out a stock market correction. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about corrections and portfolio diversification? Contact ProVise today to schedule a complimentary consultation.

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