Correction

A correction is a decline of 10% or more in the price of a security, index, or market from its most recent peak. Corrections are normal, healthy parts of market cycles, providing opportunities for new buyers and preventing excessive speculation. Corrections occur regularly in stock markets. On average, the S&P 500 experiences a 10% correction about once a year, though timing is unpredictable. They can be triggered by various factors: disappointing economic data, rising interest rates, geopolitical events, or simply a market that has risen too far, too fast. The distinction between corrections and bear markets matters. A correction is a 10-20% decline; a bear market is a decline exceeding 20%. Corrections typically recover relatively quickly - often within months - while bear markets can persist for years and represent more fundamental shifts in market conditions. For long-term investors, corrections are opportunities rather than threats. They allow entry at lower prices for those with cash to invest. They shake out weak hands, reducing the speculative excess that can build during extended rallies. And historically, markets have always recovered from corrections, eventually reaching new highs. However, corrections feel different in real-time than in retrospect. At the moment, no one knows whether a 10% decline will stop there or continue into a bear market. News is typically negative, sentiment turns fearful, and the urge to sell can be overwhelming. Having a plan in place before corrections occur helps maintain discipline. The key to surviving corrections is not trying to predict or avoid them - that's virtually impossible - but being prepared for them. This means maintaining appropriate asset allocation, having emergency savings separate from investments, and focusing on long-term goals rather than short-term fluctuations. Understanding that corrections are normal helps investors maintain perspective when they occur and potentially take advantage of temporarily lower prices.