In the financial market, a correction means a fall in stock prices either regionally or globally. Typically, short-term declines in market prices can be caused by external factors unrelated to the stock’s underlying financial condition. During a correction, stocks typically decrease 5% to 20% in value over the course of a few weeks or even months.
What to do before or in a market correction?
- What to do before a correction
First and foremost, you have to realize that corrections are common as markets fluctuate over time. Don’t bother to predict when a correction will happen because you just can’t. Usually Individual stocks may perform strongly prior to a market correction, but investors must evaluate the associated risks since stock prices are likely to decline further as the correction starts and continues. Adhere to investment guidelines and do not try to make money from market fluctuations, which can easily lead to further losses.
- Investing During a Correction
Corrections tend to hit certain highly volatile sectors such as technology harder than other sectors such as consumer staples because they have something to do with the production or retailing of essential goods. Thus, even if a recession occurs, the stocks in these sectors still perform well. Diversification can also provide protection in times of a correction. For example, real estate or tangible assets such as commodities or real estate are an alternative to financial assets such as equities. While a correction can result in short-term losses, it can be beneficial to both the market and investors in the long run.