The right decision when a market correction is due

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Yes, the market is due for a correction. That doesn’t necessarily mean a return to the crisis of 2008 and 2009. A correction is a negative reverse movement of an index of at least 10 percent. While sometimes used interchangeably, this technically differs from a bear market, which is a downturn of 20 percent or more over a two-month period or more.

These events don’t always take place across asset classes at the same time. Sometimes, certain countries or parts of the world experience these events independently. Sometimes certain sectors or industries (think big retailers of late) do the same. Every once in a great while, the broader market as a whole is impacted, sometimes in historic proportions, as we saw near the end of the last decade.

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The technical date of “the bottom” of that 2008-2009 financial crisis was March 9, 2009. There were many stories out there about investors selling out of stocks, many at or near the bottom, out of fear. This is understandable. Fear is a powerful force and, at the time, we were dealing with one of the worst markets on record. But was it the optimal choice?

Let’s say, for sake of argument, someone could pull out of the market earlier than most. That their stock portfolio only dropped by 20 percent before deciding to realize all those losses by selling. That may have felt like good timing or the right idea to some in the moment. Given what we know now, and what we’ve always known about markets, the tougher question came after the selling.

On a ride from Dow 6,500 to Dow 23,000, with much of the world market following suit, when, if ever, did most of those investors get back in?



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