No. 1: It’s an unpleasant experience, and you’re out some money

When the stock market corrects, it can leave a dent in your wallet and a bad taste in your mouth. In addition, there’s a good chance that once the correction takes place, there’s little you can do aside from accept it and figure out what to do next.

You can’t really go back in time to undo a market correction. Still, you can prepare yourself so that the long-term impact to your finances is not much worse.

The key is to recognize that money you need to spend within the next 3-4 years does not belong in stocks. With that long-term horizon, you give the market time to stage a recovery, and you give yourself a chance to adjust your spending should it appear that a recovery may take longer to happen.

No. 2: This, too, shall pass

Every market correction that we’ve had so far has been temporary, with the market ultimately coming back stronger.

Consider, for instance, the COVID Pandemic, when all sorts of businesses thought that their operations would shut down after the market collapsed. That didn’t mark the end of the businesses, but rather the emergence of a much stronger breed of businesses that learned from the pandemic and grew bigger and stronger.

In a healthy market, that’s exactly the sort of thing that market corrections enable. Indeed, one of the biggest problems our economy currently faces is that there’s a slew of zombie companies out there, surviving only because of cheap debt. Those zombie companies are consuming resources and brainpower that could otherwise be used more productively. As painful as the near-term disruption might be, history shows that the eventual recovery makes the survivors and new entrants that much stronger.

No. 3: There could be some good to come of it after all

The upside to a market correction, is that corrections often open up some opportunities to buy strong businesses at cheap prices. This is because when fear is actively winning the market’s battle of emotions, even great companies tend to see their share prices drop.

The lower the per-share price of a company, the more shares you can pick up for any given amount invested. That can serve you well in any subsequent market recovery, as you can keep those shares, even if their prices do go back up. After all, fortunes aren’t made in bull markets — that’s just when they get revealed. Value investors like Warren Buffett, who are able to buy strong companies at cheap prices during market corrections, show just how powerful that process can be.

Get yourself ready for the market’s next correction

Market corrections are inevitable.

• A correction is a normal part of the market cycle.
• A correction is a chance to buy stocks at a discount.
• A correction is a chance to rebalance your portfolio

In the long term, stock market corrections have little impact on your portfolio.

You should be aware that stocks are a long-term investment and therefore can fluctuate. The market will recover from this correction and go back up again.

Use this opportunity to top up your investments as per your financial plan. If you have any questions related to personal finance let us know in the comment box it will reply to you as soon as possible. To open a Demat account and invest click here.