S&P enters a correction, what now?
Well, it is official! The S&P 500 has officially entered correction territory. It happened sometime this morning, I know this because a Bloomberg notification went off on my phone. I swiped the notification away, logged into my brokerage account and immediately transferred some money into it. Monday, I will place an buy order, after all, it has been a while since I could actually buy a dip.
Before we go any further, let's get a couple of "definitions" out of the way. First, let's start with "correction". A correction is a 10% decline from its most recent peak. A correction can happen with any asset traded on an exchange or can be applied to an index, like the S&P 500. Corrections are normal and happen more frequently than people remember. Yardeni Research indicates this is the 12th correction of this bull market which began incredibly way back in 2009.
Since I am more concerned about indices than individual stocks, when an indice pulls backs (aka corrects) I am definitely interested in buying. Since I don't make market calls and don't believe one is capable of timing the market, I will occasionally buy "too soon" or as they say in the industry, "catch a falling knife", but I am fine with this because any money I invest, I know I don't intend to need to sell for many years, and I am confident by buying lower, I have a better chance of selling higher at a later time. Buy lower, sell higher= successful investing. You can buy higher and sell higher as well, but you don't want to buy higher and sell lower. You repeat the latter and you eventually go broke.
So I may be a little early, but if it goes down further, fine. Someday, be it sooner or later, I will get a notification from Bloomberg telling me that the S&P 500 has officially entered a bear market and guess what? I will do the same thing. I will move money into my brokerage account and submit a buy order. I will continue to fund my 401(k) grateful for the opportunity to buy assets at a discount.
That brings us to the second term needing clarity. The mean ol' "bear market". A bear market is a little subjective in definition, but it is broadly used to be a 20% downturn from a peak over a two month period. As you would guess, corrections are more frequent than bear markets. Bear markets, because you may have forgotten, are normal as well but they are full of widespread pessimism and fear. People do bad investing things in bear markets, like permanently damage their portfolio, but we are not there right now, so I will save that for another time. While it is really psychologically difficult to act upon, bear markets provide even greater buying opportunities.
"What's the point of all this, Scott?", you say. The point is stop worrying about the market. If you need to, just stop looking at your balances for a while. If you are a client, call us if you need to, we are happy to talk. Do what you need to do to control your anxiety, but do not panic or react emotionally.
It will be okay. Go outside and get some fresh air. Spend some time with people you love, doing something you love. That will be the one reaction to this correction news I promise you won't regret.