Market corrections and more severe downturns called "bear markets" are normal and are necessary—basically they serve to “clean up” what are considered prior economic excesses. Many times these downturns and bear markets offer great opportunities to buy assets at substantial discount to fair value.
During a bear market or major correction it is only natural to ask and many investors want to know, “What’s my next move?” What investors should realize is 1. Various investable markets will be volatile and understand that they will be volatile and 2. that all markets whether bull or bear markets create opportunities—often very attractive opportunities. Long before any money is invested a sound financial plan should be in place that addresses what actions should be taken under various scenarios.
Successful investing is more often about the psychological aspects of managing your money and being able to adhere to a financial strategy. It is important to understand how market conditions can create euphoria or fear in people. Market corrections and bear markets will happen…it's how you react to them that will determine your investment success. As Warren Buffett says, "Be fearful when others are greedy, and be greedy when others are fearful". Remember: bear markets prepare the way for future bull markets.
It is the long-term picture that investors need to keep in focus. If your original investment goals haven't changed, whether accumulation for retirement or funding for college education, maintaining a well thought-out financial plan coupled with a properly built portfolio will help provide comfort during volatile markets. The wisdom of the day is to remain calm, keep your financial goals in mind and use what the market presents as an opportunity rather than fall pray to it.
Paul R. Rossi, CFA