The trader works on the floor of the New York Stock Exchange (NYSE) in New York City.
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Stock market revisions are common
First, there is some comfort to investors. They may feel pain, but stock market corrections are pretty common.
There have been 27 market revisions since November 1974, according to Mark Riepe, head of the Schwab Center for Financial Research Center. On average, that’s about one every two years.
Most of them don’t cascade into something more ominous. According to Riepe, six of these revisions have become “Bear Market” (1980, 1987, 2000, 2007, 2020, 2020). The bear market is sluggish at over 20%.
Pullbacks can be “an incredible opportunity”
Brad Klontz, a certified financial planner and behavioral finance expert, says investors often engage in catastrophic thinking when they believe that market pullbacks occur and the market will not recover and will lose their hard-earned money.
The reality is that Kronz, the principal of YMW Advisors in Boulder, Colorado and a member of CNBC’s Advisor Council, says pullbacks are not a low-risk time for investment.
Investors are also buying shares at a discount known as “Buy DIP.”
“It’s an incredible opportunity for you to put in more money,” Kronz said.
This is especially true for young investors decades as stock prices recover and grow, Kronz said.
Investors in workplace planning, such as 401(k), unconsciously exploit the selling of stocks via dollar cost averaging. A portion of their paychecks are on the market in any pay cycle, regardless of what’s going on in the market, Kronz said.
Beware of stock/bond allocations
But investors should think carefully before buying stock prices, said Christine Benz, director of personal finance and retirement plans at Morningstar.
They should generally avoid divergence from stock/bond allocations calibrated in well-rented financial plans, she said.
Of course, certain investors who have cash on the bystanders may be able to take advantage of the sale by investing in undervalued stocks, Benz said. For example, large U.S. stocks were selling at about 5% discount on fair market value as of Wednesday, according to Morningstar.
“I think asset allocation goals will lead the way to determine if it’s a good strategy,” Benz said.
