A stock market correction is an inevitability. You just don’t know when it will happen exactly. Technically, a stock market correction means a decline of 10% or more from the peak. A bear market is when the stock market declines by more than 20%.
It’s exactly during the good times where we need to be more disciplined in our finances, because we never know when the bad times will return. We went through bad times in March 2020. Now it’s the YOLO recovery!
If you’re American living in America, look at the bright side of things: the US dollar is strengthening, and the 10-year yield is back up to ~1.7%. Therefore, investors can now earn more income. Further, retirees can raise their safe withdrawal rate.
The USD will always be a global safe haven currency, no matter how hard we try and mess things up. It’s good to see that we aren’t the only basket cases as investors sell the Euro faster than they can say tapas! What’s going on now is that money is shifting towards US assets, namely the property market.
Combine an asset shift with cheap debt, and rental yields above the current risk-free rate of return (3.1%), you realize why smart money is moving into the US property market again. Only a minority will agree with the attractiveness of the US property market, and therein lies the opportunity.
During bad times, it’s always good to re-evaluate your finances. I’m not convinced the bad times are back and am actually quite sanguine about the economy with the unemployment level at a tight ~5.3%. All the same, here are some suggestions just in case things get ugly for longer.
Things To Do During A Stock Market Correction
1) Know where your money is. It’s important to have an idea of where every single dollar of your wealth is allocated. In a bull market, perhaps suddenly you find yourself with 50% of your net worth in the stock market vs. a 35% comfortable allocation. The best way to get a snapshot of your assets is to list everything out in an excel spreadsheet manually. Re-evaluate, re-balance, re-consider. Check out my proper asset allocation of stocks and bonds by age post.
2) Consider being contrarian and don’t confuse brains with a bull market. Was there a reason you’ve been holding 30% cash in the stock portion of your portfolio? Perhaps the reason was exactly for times like this? It’s generally never good to panic in either direction. If you read my post published in March 2020 entitled, How To Predict A Stock Market Bottom Like Nostradamus, you will notice my contrarian view.
3) Get in earlier and leave later. In other words, work harder at your job and show that you are an indispensable team player. I can promise you that every manager thinks about cost cutting as soon as we have 10% downward movements in the markets. The manager’s goal is run a profitable business units and layoffs are always on the back of their minds. Your manager thinks about a future of “what ifs”, and so should you. Buckle down, be outstanding. You can’t control the markets, but you can control how great you are.
4) Prepare for the worst, but keep faith things will be OK. Preparing for the worst means ratcheting down your expenses and getting rid of inventory. Inventory can include your mountain of books, clothes and your 3rd TV with accompanying 3rd cable box. Expenses can be that $200/month gym membership you never go to or else you’d be thin. Preparing for the worst also means looking for a new job and developing side incomes just in case your main source gets expunged. If the worst comes, you’re ready, and if things are just business as usual, you’re pumped! When you prepare for the worst, there’s only upside!
5) Look around and realize today is just like yesterday, which will be just like tomorrow. If you didn’t have a media stream telling you the world is ending, you’d never let financial losses affect your well-being. A stock market correction always feels worse than it really is.
Your happiness is all in your mind. You have the power to choose to be happy. It doesn’t cost much to touch base with family and friends or go for a walk in the park. Too often, we close inwards and worry about how we’re going to retire comfortably during market turmoil. Things come back after a stock market correction. They always do.
Remember to focus on things you can control and let go of things that wiggle and squirm. If you choose to let fear enter your mind, you might as well use it to fuel new creation. Downturns are exactly the time to start something or do something better. Cherish meltdowns and embrace the challenge!
A Stock Market Correction Will Come
Don’t be afraid of a stock market correction. When it comes, take advantage! With proper cash management, you should always have enough fire power to buy stocks at lower levels.
A stock market correction is one of the best opportunities to get rich. Hold your stocks long enough and generally good things will happen.
Track Your Net Worth Easily For Free
In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their amazing Retirement Planning Calculator.
Those who come up with a financial plan build much greater wealth over the longer term than those who don’t!