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It’s Here: The Market Correction

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It’s Here: The Market Correction

Major investment analysists have been saying that a market correction is not a matter of “if” but “when” and the recent market volatility puts us in the correction territory. A market correction is defined as a fall of at least 10 percent in a stock or other security. It can happen at any time and can be caused by many factors. First, a market correction can occur when investors sell stocks to realize profits after a significant rise in the share prices. Collectively, if more investors sell than buy, the price can fall causing a correction.

Next, there are many ways investors can technically analyze the market. When market indicators such as the 200-day moving average or the on-balance volume reach key levels, it may be an indicator of strength or weakness in the supply/ demand ratio of the stock in question. This can in turn trigger selling that could produce a market correction.

Corporate Earnings is a fundamental purpose for stock investment. Everyone is looking for steady or increasing corporate dividends. When a corporation’s earnings are declining, its stock price will typically fall as well. When this happens across an economic segment or global market, of course, a correction could result from the natural sell-offs that would ensue.

Finally, fear can lead to panic-selling. Fear is an extremely powerful motivator that leads to a sense of discomfort powerful enough to make us act. The adrenaline surge from a fear-filled moment is what allows us to remember the event in the future. This strong negative motivator circulating in a community can cause a market correction.

When a market correction happens, it is important to keep calm! It is critical that fear not be your guide at a time like this. Selling good-performing, long-term investments may be the worst thing you can do when the market experiences short-term falls. Your investments should be made in the context of an overall long-term financial strategy. If your goals or circumstances have changed, that would be the time to consider reallocating your investments. Try not to make emotional decisions under what might be temporary circumstances to avoid unhinging investment strategy.

The best way to handle a market correction is to have a solid plan in place before the correction happens. Having a plan that includes protective measures such as asset diversification, profit harvesting, and possible insurance provisions allows you to be patient during the correction and not dwell on the headlines and radio hawks. Stick with your plan, which should include diversification among asset classes. Fight your instincts to jump ship, as sometimes a market correction is part of a normal, healthy market.

Your financial advisor can help you make sure that your investments are in line with your risk tolerance, so that should a market correction happen, your long-term objectives are more likely to stay within reach. It is recommended that you meet at least annually with your advisor and more often should your situation or circumstances change.

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