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How To Survive a Market Correction

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Sometimes when I read a title or headline of an article in a financial magazine, I think about what I'd write if tasked to write the article. The August 2014 of Kiplinger's Magazine has a title across the top that says, "How To Survive a Stock Market Downturn."

My reaction was to write the second shortest article in the history of Lazy Man and Money (this is the shortest). It would consist of simply two words:

Diversify. Wait.

I was really hoping that Kiplinger's made that the whole article. I think it would have gotten a good laugh and perhaps made some news for being a little weird (in a good way).

These two words work for many people. If you are properly diversified a market downturn will unlikely apply to your whole portfolio. Your real estate, bonds, and/or gold would likely not drop 10% at the same the S&P 500 does. If you wait for a recovery, you avoid panic selling that often leads to people buying high and selling low... which is the recipe for losing money.

The article's advice itself was slightly different. It suggests that with the market reaching high, some are selling winners and holding the profits in cash. If/when the correction comes, this cash can be used to buy quality companies at a discount. There was also a suggestion to ignore the negative news and media and remember that markets typically rebound in after several months, which in small way amounts to my thought of simply "wait."

It's all very useful stuff. I recently sold nearly $8K of Apple stock that had appreciated very quickly over the last few months (I kept some as well). I've been looking for a place for this money, but now I'm thinking it's best just to keep it in cash and use it when a buying opportunity arises.

P.S. I originally was going to go with "do nothing" instead of "wait", but I couldn't justify making the article 50% longer by adding an extra word.

Last updated on July 7, 2014.

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2 Responses to “How To Survive a Market Correction”

  1. Kathy says:

    I was going to say Be Patient. But “wait” is just as effective. In ’08 when things headed south, hubby and I did nothing. Because we invest in bonds and dividend paying stocks, we held everything and the interest and dividends just kept right on coming. We experienced no pain to anything other that a bottom line figure for net worth which is a number that changes daily anyway.

  2. Lazy Man says:

    Kathy, that’s an awesome way of looking at a market correction. I still consider myself “young” (for the purposes of investing) at 38… everything is reinvested, so I don’t focus on interest and dividends, but the bottom line.

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