Surviving a Market Correction: What Every Investor Needs to Know

A market correction is a term used in finance to describe a temporary drop in the stock market or a specific asset class. It is a natural part of the market cycle and can occur for a variety of reasons, including economic, geopolitical, or simply investor sentiment. Market corrections are typically defined as a decline of 10% or more from recent highs and can be seen as a healthy remedy to dampen excessive market exuberance or, more ominously, as a precursor to a more severe downturn. As an investor, understanding market corrections and how they can affect your portfolio is crucial for managing risk and making informed investment decisions. And avoiding the most common mistakes may be the key to long-term portfolio pain. Two of the most cited mistakes are bad investor behavior and having a portfolio that’s inefficient. What are the Primary Causes of a Market Correction? Market corrections can be triggered by a variety of factors, including economic data releases, geopolitical events, or changes in investor sentiment. One common cause of market corrections is a change in interest rates by the Federal Reserve.