Will you be prepared for a market “correction”?
August 22, 2023 | John Gilliland, Senior Vice President - Financial Advisor at RBC Wealth Management
As an investor, you probably enjoy looking at your statements when the stock market is up. At the same time, though, you might wonder how long the ride will last and what moves, if any, you should make when it ends.
If or when a market correction – a decline of at least 10 percent – happens, here are a few suggestions.
- Don’t panic. Corrections happen regularly and do not signify an imminent collapse of the markets. During a correction, you don’t need to take a break from investing. In fact, you may find opportunities to add quality investments when their prices are down – which means you’ll be following the first rule of investing: buy low.
- Evaluate your risk tolerance. Generally speaking, those investments that provide the greatest growth potential can also carry the most investment risk. So, if you find yourself losing sleep over declines in your portfolio during a market correction, you may need to re-evaluate your risk tolerance and adjust your investment mix accordingly. You might be willing to exchange some growth potential for more stable returns, but it’s still important to have a reasonable percentage of growth-oriented investments in order to accumulate the resources you need to achieve your goals, such as a comfortable retirement.
- Check your diversification. Most people’s portfolios are going to be dragged down during a market correction, but investors who are properly diversified may fare better than the ones who only own one or two types of assets. This happens because individual investments often move in different directions at any given time. To illustrate: If you primarily owned domestic stocks, you'd be more likely take a bigger hit than someone who owned U.S. and international stocks, corporate bonds, government securities, certificates of deposit (CDs), and possibly even alternative investments such as precious metals.
It can seem easy to be an investor when the market keeps climbing. But when it goes into a correction, investing can become more challenging. By following these suggestions, you can get past short-term downturns and keep making progress toward your long-term goals.
Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.
RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.
Asset allocation and diversification do not assure a profit or protect against loss.
This article is provided by John Gilliland, a Financial Advisor at RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.