Stock Market Corrections, Crashes, and Bear Markets: What to Do When Your Investments Go Down?

Following is an excellent article from the New Retirement website. Make sure you read the full article.

Stock Market Corrections, Crashes, and Bear Markets: What to Do When Your Investments Go Down? May 19, 2022 by Kathleen Coxwell

Stock market corrections, crashes, and bear markets are a reality of long term investing. They have happened before and will happen again. Here are 10 tips for weathering these investment storms:

1. Remain Calm Watching the stock market lose value is not fun. However, don’t panic.

Historically, those who remain calm and stay the course with their investments are rewarded with a big bounce in due course. Unfortunately, many retail investors (regular people who invest their money themselves) get nervous as prices trend downward. It is not uncommon to hear stories of people getting nervous and selling at the market bottom and then not re-investing, missing the market recovery. This is the single biggest reason that retail investors typically lag overall market performance. We can not predict what will happen, but acting calmly is bound to serve you well. Do not panic is the first rule of protecting your long term financial health in a downward trending market.

2. Understand that Bear Markets, Crashes and Corrections Are Normal

According to Investopedia, between 1980 and 2018, the U.S. markets experienced 36 corrections. Ten of these corrections resulted in bear markets, indicating an economic downturn. The other 26 remained or transitioned back into bull markets reflecting economic growth and stability. The average market correction is actually pretty short-lived lasting anywhere between three and four months. According to data, of the past 20 corrections, only two lasted longer than 100 trading sessions. The longest recent stretch in correction territory was a period of 229 trading days that ended in 1978.

3. Repeat After Me: If You Don’t Sell, You Don’t Lose Actual Money

If you owned $100,000 of a stock index during a 20% correction, you might say that you lost $20,000. This might feel awful. However, it is important to remember that if you don’t sell, you only actually lose that money on paper. Don’t focus on the virtual losses, consider what you stand to gain if you can stay invested.

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Source: Stock Market Corrections, Crashes, and Bear Markets: What to Do When Your Investments Go Down? | NewRetirement