3 Lessons From Last Week’s Wild Stock Market Ride

Last week was not an easy one for investors to stomach. After many months of relative stability, stocks finally plunged into correction territory. While things seem to have settled down this week, we don’t know what the rest of February has in store.

Last week’s events may have caused you to lose sleep (or at least experience a bout of transient stress), but there are some important lessons we can all take away in their wake. Here are some to keep in mind for when — not if — we experience another stock market correction.

Image source: Getty Images.

1. On-screen losses don’t matter

When I checked my portfolio balance a week ago, I’ll admit that I didn’t like what I saw. My portfolio value had, in a matter of days, plunged by over 10%.

My balance isn’t back up to where it was at the very start of the year, but it’s already higher than it was a week ago — and that’s without me doing a thing. In fact, the reason my portfolio is already recovering is because I didn’t make any rash decisions last week, like dumping stocks at a loss. Instead, I sat tight and waited for the market to stabilize.

One thing all investors must remember is that the only way to lose money during a stock market correction is to sell investments at a loss. If you don’t cash out investments when they’re down, you’ll give your portfolio a chance to regain lost value, which is what I’m already seeing on my end.

2. Corrections can be brief

The bad news about stock market corrections is that they can be pretty frequent. The good news, however, is that they can be short-lived.

While my portfolio is still down compared to the start of January, it’s already in far better shape than it was a week ago. And frankly, I’m glad I didn’t waste time stressing over what ended up being a brief blip.

That wouldn’t have been the case when I first started investing, though. Years back, I remember flipping out the first time my portfolio value sank to such an extreme extent so quickly. But since then, I’ve learned to expect and accept stock market corrections and take them in stride.

3. Having cash on hand is crucial

While I certainly didn’t love seeing my portfolio value plummet last week, I did take the opportunity to scoop up some stocks on my wish list at what I consider a discount. And that’s the one positive thing about stock market corrections — they can serve as a buying opportunity.

That’s why I like to do two things in anticipation of market corrections — maintain a watchlist of quality stocks I want to own, and keep cash on hand so I’m ready to buy when the opportunity presents itself. Had I not had cash available in my brokerage account last week, I would’ve missed out on some of the stocks I ended up acquiring.

There’s no question that stock market corrections — even quick ones — can be daunting. The good news, if you’re a fairly new investor, is that they get easier to deal with over time. And if you prepare for them by maintaining a diverse investment mix in your portfolio and having cash at the ready, you’ll put yourself in a strong position to not only make it through each time, but also possibly come out ahead.

10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 6/15/21

The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published.