Market Corrections Are Normal. Timing Them Is a Fool’s Game. | Jimmy Bisharat
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Market Corrections Are Normal. Timing Them Is a Fool’s Game.
By: Jimmy Bisharat
Every investor experiences market downturns, but too often, fear drives people to make costly mistakes like trying to time the market. It’s natural to feel uneasy when stock prices dip, but history shows that corrections are a normal part of investing. The real risk isn’t the market going down, it’s making emotional decisions that keep you out of the market when it bounces back. While first-time investors often look at corrections as extremely problematic, long-term investors see them as potential opportunities for gains.?
Timing the Market? Good Luck.
No one, not even the most sophisticated investors, can consistently predict market movements. The challenge isn’t just knowing when to get out; it’s also knowing when to get back in. And most people get at least one part wrong.
If you’re sitting on the sidelines when the recovery starts, you may miss out on potential gains. In fact, studies show that missing just the best day of each year in the market since 1990 would have cut your returns drastically from an average of 9.8% per year down to just 6.1%. While market volatility can be daunting, experienced investors understand that the market tends to recover quickly.?
The Hidden Costs of Panic Selling
Selling out of fear not only keeps you sidelined for future potential gains, but it can also bring unintended financial consequences, especially in taxable brokerage accounts. Any gains realized from selling will trigger taxes, potentially reducing your returns even further. That could be more money out of your pocket simply because your emotions took control.
Corrections Happen. History Says Stay Invested.
A market correction is typically defined as a decline of 10-19% from recent highs. Since 1980, the S&P 500 has experienced 22 corrections. What happened afterward? Three months later, the market was higher 92% of the time, with an average gain of 13.1%. Over a three-year holding period, the probability of gains is 85%. Those odds are hard to find in investing, especially in short timeframes.
Warren Buffett, considered by some as one of the most successful investors of all time, doesn’t panic during market downturns— he gets to work. Buffett follows the mantra, “Be fearful when others are greedy, and greedy when others are fearful.” In other words, he sees downturns as buying opportunities, not signals to run.
Dollar-Cost Averaging
Many investors hesitate to buy when the market is down, but this is when dollar-cost averaging (DCA) could be helpful. When prices fall, your money buys more shares at a lower price, reducing your average cost per share over time.?
If you’re investing for the long term, whether it’s for a home purchase in eight years or retirement in 30, market corrections could be considered an opportunity.? Instead of focusing on the daily value of your portfolio, look at the number of shares you own. Over time, history has shown that those shares could appreciate.
Time in the Market Beats Timing the Market
The key takeaway? Investing is a long game. Stay invested. Trying to dodge market downturns by jumping in and out is a losing strategy.? More experienced investors embrace volatility, knowing that market corrections are temporary, but the long-term trend is upward. So the next time the market drops, take a breath, stay the course, and maybe even get excited. History suggests the comeback is coming and this is your time for potential gains.?
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Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.
Jimmy Bisharat is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$3.36B billion in assets under management as of 12/31/24.? The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."?