With Market Correction Looking More Likely, Here’s How to Protect Your Investments
The prospect of an upcoming stock market correction might be scary for investors, but most financial experts say there’s no need to panic or worry — if you make the right moves.
Talk of a correction heated up on Monday when Moody’s Analytics economist Mark Zandi warned that there could be a 10% to 20% pullback amid talk that the Federal Reserve might raise interest rates.
And as CNBC reported on Monday, Zandi suggested the pullback might already be happening.
So that should investors do?
That depends on what your money is earmarked for. Most financial experts say you should stick to your current goals and strategy when it comes to 401(k)s and other retirement plans. The same holds true for any investments or financial goals with a time horizon of five years or more.
“Stock ownership should always be for a long-term hold: five-plus years,” said financial advisor Scott Hanson, a certified financial planner and co-founder of Allworth Financial in Sacramento, California, told CNBC.
But if the money you have invested has been set aside for short-term goals — such as paying for a child’s upcoming college education, or for a new home you plan to buy within the next year — then now is probably a good time to sell those stocks.
During market corrections, it’s advisable to put money for short-term goals into comparatively safe investments like value funds, fixed-income funds and short-term bond funds. This is especially true for retirees who can’t afford to lose money in the stock market.
Ted Jenkin, CEO of Oxygen Financial in Atlanta, told CNBC that if you’re 70 years old or older, “you have no business having 70% of your money in the stock market. You should have 70% of your money in fixed income.”
At the same time, market corrections also open up the door to make winning investments. Investors without a lot of money to spend, for example, get a chance to buy stocks at lower prices during market corrections.
“Stock market corrections are scary when they happen, but (are) actually a great opportunity for the smart investor when they occur,” Certified Financial Planner David Rae wrote in column for Forbes last week. “Optimistically, we are one step closer to the next great buying opportunity. Don’t waste a ton of time stressing about when the next bear market or recession is coming.”
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