It’s important to remember that corrections like this are regular and normal. In fact, they probably happen a lot more frequently than you think, asserts David Dierking, editor of ETF Focus.
A 10% correction in the S&P 500 happens roughly two out of every three years. A 20% bear market happens roughly once every four years. These aren’t once-in-a-generation type events that wipe out families completely. They’re declines that come with the turf when investing in risky assets.
If the tech correction we’re experiencing right now still makes you feel a little sick, re-evaluate your situation and consider making slow and steady changes to your portfolio to reflect this.
At some point, stock prices will move higher again. They have at every point in history. You just need to risk-manage your portfolio so that you’re comfortably creating long-term wealth.
If you’re shopping for clothes and you see a shirt with a 15% off tag, you’d probably be more interested in buying it. Why doesn’t the same principle apply to stocks?
It’s the one thing where people want to buy more after the price gets higher and avoid when it goes on sale. If you have some cash sitting on the sidelines, consider using some of it to buy the stocks that are on sale right now.
Sure, you may not be buying at the bottom, but you won’t know what the bottom is until after it happens. Locking in a purchase when prices are down 10%-15% can be one of the easiest ways to improve your portfolio’s return long-term.
It takes discipline though. The investing public will tell you repeatedly and collectively that things will get worse after prices go down. Very few will tell that this is an opportunity. It’s the latter, but it takes courage (and making sure it’s still consistent with your long-term goals).
Everybody is a risk seeker when stocks keep going up. When they go down is when they usually find what their real risk tolerance is. If you find yourself in that group, consider diversifying your portfolio. You may be more heavily invested in the Magnificent Seven stocks than you think, even if the core of your portfolio is the S&P 500.
Here are a few ETFs to consider if you want to change the composition of your investments:
• If You Want To Lower Your Risk, But Remain In Large-Caps: Invesco S&P 500 Equal Weight ETF (RSP)
• If You Want To Make A Modest Addition Of Small-Caps: Vanguard Total Stock Market ETF (VTI)
• If You Want To Add Some Defense: Invesco S&P 500 Low Volatility ETF (SPLV)
• If You Want To Take Some Risk Off The Table: iShares Short Treasury Bond ETF (SHV)
• If You Want To Add In Some Downside Protection: Innovator Laddered Allocation Power Buffer ETF (BUFF)
