What To Do When #### Hits The Fan
Updated: Apr 11, 2020
The unfortunate reality of investing is that periodically and throughout time securities markets do experience sudden and severe drops in value. What we’re seeing now because of the Coronavirus is a poignant example. These drops generally fit into one of two categories: corrections and bear markets.
Corrections happen when the stock market loses 10% of its value. These drops are very minor and typically happen when the markets get irrationally overextended. Historical data tells us that the average correction lasts approximately 196 calendar days, and they’ve been getting shorter over the last three decades.
Bear Markets happen when the stock market loses 20% or more of its value. These drops are more severe and happen much more infrequently. The Great Depression and the Great Recession were both bear markets. Historical data tells us that the average bear market lasts 15 months and results in a 32% decrease in market value.
In both cases, it is important to realize that just because a correction or a bear market has ended does not mean the market has fully recovered. The end of a correction or a bear market is an important step on the way to full market recovery, but full recovery is a complex process that can often take some time.
Regardless of whether you find yourself in a correction or a full-blown bear market, the most important thing to remember in both of these situations is to not panic.
No matter how bad things look remember that the market, and your investments, will recover. It may take some time but they will recover. The reason we say not to panic is that a market downturn presents opportunities for further investment that could help drive the recovery and profitability of your investment portfolio. If you are a long term investors, when things get ugly simply do these four things:
Nothing. Even stop checking your portfolio if that helps.
DO NOT sell stocks.
Buy more (especially if you were going to anyway).
Rebalance your portfolio after things settle down a bit.
Look, no one likes to lose money, but the stock market can’t go up forever. Corrections and bear markets are just a part of investing. If you remain calm you will be just fine.