Capital markets have been making headlines this week with various equity indexes entering correction territory, falling more than 10% to start the year. This volatility is not pleasant news, but it is nothing we have not seen before in market history. If this is your first time experiencing a market correction, you may be feeling the urge to sell off stock or make portfolio adjustments. Before you take any drastic actions, here are some thoughts to keep things in perspective.
This is not a surprise
Given the fact that 2021 was kinder to investors with an absence of volatility, it is not surprising that we are starting to see a downward trend. The market has not seen a correction of magnitude for quite some time. Although it may seem concerning, it is key to remember that corrections are part of stock market behavior and can happen from time to time. Furthermore, rising rates, the impending end of asset purchases by the Fed, rate hikes, inflation, valuations, and mid-term elections are all factors this year that combine to create a recipe for increased volatility.
Corrections are normal
Before you start letting fear set in, another thing to consider is that markets routinely decline. With how the market has been behaving the past few years, a 10% correction is not abnormal. This will mark the sixth correction of 10% or more since 2015, averaging out to just under 1 per year. Market returns are not linear; as noted above, corrections happen regularly. They are a necessary mechanism for the continuation of a healthy and sustainable market.
What should you do?
Since this correction is not necessarily raising any eyebrows yet, it is recommended that you hold tight and not make any sudden changes to your investment strategy. At BerganKDV, we work with our clients to develop portfolios that take negative trends and volatility like this into consideration to form a solid investment plan. Creating and implementing a plan that is diversified enough to account for market highs and lows is key for achieving long-term success and combatting uncertainty.
If you have questions regarding your portfolio diversification and establishing a robust investment strategy, BerganKDV can help. Contact us today to learn more about our Wealth Management solutions and what our advisors can do for your financial planning needs.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained in here are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.