It may come as a surprise to some, but market corrections happen fairly often. It's normal for the economy to naturally go through peaks and downfalls over time. Don't panic when a market correction happens. By the final quarter of 2018, we have become long overdue for a market correction; such a correction is inevitable. We typically experience a correction once every 55 months (4.5 years); however, we have not had a meaningful correction - defined as a 20% drop in the market - in over 115 months (9.6 years), which is the longest run in history.
Highs and lows in the market will always occur. Some common causes for a market correction are economic indicators, political and geo-political factors, valuations in various asset classes, environmental and weather factors, "disruptions” such as new technology and technical trading.
While it's normal for investors to get scared, frustrated, or upset about losing money in the market, these short-term emotions are not based on sound investment principles. When investing, it is important to stay calm. The end of the year is a great time to review your finances and identify any changes you want to make in your overall investment portfolio.
1. Know your timeline - when will you need funds? In 5 years, 10 years, 20 years? Determine how many of the market ups and downs you are willing to stomach.
2. Make sure you are invested in the right mix of stocks, bonds, and cash for your specific needs.
3. Don't worry if and when a market correction happens - you will be well prepared if you complete steps 1 and 2!