Preparing Yourself Mentally for an Inevitable Market Correction

All financial markets are generally cyclical in nature. There will be ups and downs. There will eventually be market corrections after long periods of certain economic trends. We’ve been fortunate to experience more than a decade of strong stock market gains. There have been some brief crashes and spikes along the way, but the general trend has moved steadily upward for a long time.

Is a Market Correction Coming in 2022?

With inflation and other economic factors in play, it’s inevitable that there will likely be a major market correction sometime in the future. We don’t know exactly when, but we know it’s coming eventually. As an investor, you have to prepare yourself mentally for these market corrections. You also have to make smart financial planning decisions before a market correction takes place, during the correction and then after.

A good investment plan should weather any storm if you have a healthy amount of diversification and are able to make the right moves at the right time. Ideally, you have a solid long-term foundation that provides steady growth. Then, there are short-term transactions and adjustments you can make along the way to both prepare for and take advantage of shifts in the stock market.

Market corrections can actually present great opportunity to buy stocks at lower prices before they ultimately go up again. At the same time, there are mistakes you want to avoid heading into a market correction. You don’t want to get caught with your proverbial pants down when there’s a big dip in the market and you’re left holding a bunch of worthless stocks.

Here are a few considerations to make when preparing yourself mentally for an inevitable market correction:

Keep it All in Perspective

Stock watchers are always predicting more market corrections than actually happen. You have to be careful not to fall into these traps and go into “panic mode.” It’s important to study the trends and understand the natural ebbs and flows of the market. A good investment advisor can also help guide you in anticipating when a significant market shift might occur. Always keep the big picture in perspective to avoid panic moves that will hurt you in the long run. 

Anticipate the Correction

If you feel your stock is at its highest and the market seems to be heading for a price drop, you should consider selling them at peak value. Even if the market correction never happens or isn’t as severe as feared, you will still be ensuring a healthy profit. You might even be able to buy back those stocks later at a much lower price if there is a large market correction. Also, remember you don’t have to sell all your stocks. Sell a portion to ensure a profit and hold onto some if you think the prices will go back up after the correction.

Diversify, Diversify and Diversify Some More

A proper investment plan must be build on diversification. Investors who put all their eggs in one basket are usually the ones hurt most by market corrections. Those who have diversity in their portfolio can survive crashes and thrive during high points. Success is all about diversifying your stock holdings, as well knowing when and how to make strategic moves before, during and after market corrections.

Think Long-Term

Remember your investing goals. Smart investors are thinking more long-term. The market is not a “get rich quick” scheme if you are building your investments for retirement and financial independence. Market corrections will come and go. You may take some hits along the way. However, if your investment plan is built to last, you will get where you want to go over time. Again, make any adjustments based on long-term strategy rather than short-term panic.

For help with your investment plan and your financial independence strategy, contact Illumination Wealth today. Let our team help build your financial plan and guide you through all the market ups and downs.