Navigating Stock Market Corrections: Tips from 30-Year Financial Advisors

The S&P 500 has had a fantastic run recently, posting consecutive years of 25% gains. While this is great news for investors, it’s also a good time to remember that stock prices don’t always go up. Corrections are a normal and healthy part of the market’s journey, and understanding them can help you stay calm when the markets take a dip.

In this blog post, we’ll break down what corrections are, how they differ from bear markets, and share practical tips from two of our financial advisors with decades of experience. Let’s dive in!

Watch Now:  Navigating Stock Market Corrections

What Is a Market Correction?

A market correction is a 10% drop in stock prices from their recent high. It’s often called a “pullback” and usually happens about once a year. While it never feels good to see your investments lose value, corrections are a normal part of the stock market.

Then there’s the more severe “bear market,” which is a 20% drop in prices. Historically, bear markets happen about once every five years. Though they can be intimidating, it’s important to remember that these downturns are also normal. Over time, the market has consistently rebounded and rewarded long-term investors.

Why Corrections Are Normal—And Even Healthy

After a couple of fantastic years, it’s easy to feel overconfident and think the market will keep climbing. But the truth is, even in strong bull markets, corrections and pullbacks happen. Since 1980, the average annual price drop within a calendar year is about 14%. Despite these dips, the market has ended the year with positive returns almost three-quarters of the time.

And what about bear markets? Since World War II, there have been 15 bear markets. Despite those downturns, the S&P 500 has seen a massive overall increase—rising from 17.36 in early 1946 to 5,881 by the end of last year (not even including dividends!). This shows that while the market can be volatile in the short term, it has a strong upward trend over the long term.

How to Stay Mentally Prepared During a Correction

Market corrections often bring fear and uncertainty, but they don’t have to derail your investment goals. Here are three tips to help you stay calm and focused:

1. Focus on Your Long-Term Plan Investing is not about what happens today or next month. It’s about building wealth over the long haul—whether that’s 10, 20, or even 30 years down the road. Don’t let short-term movements distract you from your ultimate goals. Corrections are a natural part of the process.
2. Stop Checking Your Accounts Every Day Constantly checking your portfolio can lead to unnecessary stress. Watching your account go up one day and down the next can make the market feel more volatile than it actually is. Instead, check your portfolio less often—maybe once a month or even once every six months. Many long-term investors find they’re happier when they spend less time worrying about daily market swings.
3. Remember Why You’re Investing When the market dips, remind yourself why you’re investing in the first place. Are you saving for retirement, a child’s education, or the next generation? Keeping your goals in mind can help you stay focused and avoid making emotional decisions during downturns.

What You Can Do Today

If you’re feeling uncertain about the market, here are some actionable steps you can take right now:

1. Review Your Financial Plan Ask yourself: How does the investment side of your life fit into your overall financial plan? If you don’t have a clear plan, now is a great time to create one. Sit down and figure out what you’re trying to accomplish and whether your investments are aligned with those goals.
2. Think About Volatility Volatility is part of investing. Take some time to understand how market swings could impact your short- and long-term goals. This will help you stay prepared when the market takes a downturn.
3. Talk to a Financial Advisor If you’re unsure how to navigate market corrections or bear markets, a financial advisor can help. They can guide you through the planning process and ensure your portfolio is positioned to weather the ups and downs of the market.

Adjusting Your Risk Level

Sometimes, being super aggressive with your investments isn’t necessary. For example, if your plan only requires earning 5-6% annually to achieve your goals, you may not need to take on as much risk. Work with a financial advisor to determine if your current strategy matches your risk tolerance and goals.

The Bottom Line

Market corrections are a normal and healthy part of investing. While they can feel unsettling, they don’t have to derail your financial goals. By focusing on your long-term plan, limiting how often you check your accounts, and remembering why you invested in the first place, you can stay calm and confident during market downturns.

Stay patient, stay calm, and stay focused on your plan.