There is a lot of speculation about rate cuts by central banks that have spooked the stock market, especially the FED, which remains undecided about its next move. This has caused a lot of market volatility, which could cause markets to drop by up to 20%.  This impending market correction could affect your portfolio and put it at risk, but on the upside, could potentially offer investment opportunities

 It is advisable to chat with a financial advisor to review your portfolio and make any adjustments to ensure your finances are mitigated against possible losses and to determine possible buying opportunities.

What is a Market Correction?

A market correction is typically defined as a decrease of at least 10% but less than 20% from the most recent high. Corrections are a common occurrence in financial markets and are considered a natural part of market cycles.

Nigel Green, deVere CEO, says that a potential correction could provide investors “even more opportunities” to build wealth with the right advice. “With the ongoing lack of clarity from major central banks, including the Fed, we would not be surprised to see markets falling into correction territory this quarter. As such, investors should buckle up for more turbulence.”

Corrections help stock markets maintain a balance by preventing excessive speculation and unsustainable price increases. They provide an opportunity for overvalued assets to readjust to more reasonable levels.

There is potential for Investors to use corrections as opportunities to reassess their portfolios, reallocate assets, and position themselves for potential future growth. Many see corrections as buying opportunities, especially if they believe the fundamentals of the assets remain strong.

Revising your Financial Portfolio

This is the process of reviewing a financial portfolio to optimise the composition of your portfolio and ensure that it is aligned with your financial goals and risk tolerance. This is ideal, especially when markets are volatile, and a correction is imminent.

• Asset allocation – A portfolio usually consists of various assets like equities, cash, and bonds. A review allows for changing assets or increasing or decreasing the asset weighting according to financial goals. e.g. re-allocation or selling assets that have increased in proportion to buy assets that have decreased in proportion to revert back to the original asset allocation. This will benefit investment portfolios over the long term.
• Financial risk management – Over time, the risk of a portfolio changes as certain assets increase in value more than others. This tips the balance and might put the portfolio into a higher or lower risk factor affecting financial risk. This requires selling off some stocks to get back to the original risk profile of the investor, e.g. a portfolio has 60% equities and 40% bonds. Over time, the equities perform better, and their weighting increases the portfolio to a 70% 30% weighting, putting the portfolio into a high-risk category. The equities portion must be reduced until there is a 60% weighting again. This means selling off some equities or increasing the bonds portion. An investor may prefer a balanced risk portfolio. As equities increase, it puts them into a higher risk or moderately aggressive investing category. The advisor must rebalance the aggressive portfolio back to a lower-risk, balanced portfolio that the investor prefers.
• Diversification – Basically, not carrying all your eggs in one basket. By increasing the diversity of an investment portfolio, the risk of loss is reduced. If one asset performs poorly, the other assets can absorb the loss. This means spreading the portfolio over different asset classes, regions, and sectors. e.g. not all sectors are affected the same way, so if one sector underperforms, another might be doing well. Tech stock is booming, but commodities might be struggling.
• Buying opportunities – It is important to have a strategic mindset when buying stocks. Look for stocks that have lowered in value over the short term but are fundamentally still strong and valued stocks from reputable companies. Corrections force stock prices down, allowing you to buy more valuable stock for less.

While a market correction can be worrisome and stressful for investors, it does create opportunities to buy good stock at lower prices, which benefits long-term investing. Always chat with a financial advisor before making investing decisions.

Please note, the above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.