Don't rush to sell
It's natural to get spooked by a stock market correction like the one we're currently in the midst of. But it's also important to remember that market corrections are fairly common.
Since 1929, the S&P 500 index has fallen into correction territory 56 times, per a Reuters analysis of data from Yardeni Research. But here's some encouraging news — of those 56 corrections, only 22 became bear markets.
Even more importantly, the stock market has a strong history of recovering from corrections. Invesco says the average time for the market to recover from a decline of 5% to 10% is three months. For a drop of 10% to 20%, it's eight months. But either way, the market does tend to recoup losses like these over time and reward investors who stick with it.
For this reason, it’s not a great idea to sell off stocks during a stock market correction. If you do, you’re almost guaranteed to lock in losses in your portfolio. If you wait out a correction, you have a very good chance of a full portfolio recovery, and then some.
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Learn MoreMake sure you're well-diversified
One of the best ways to protect yourself from stock market volatility is to maintain a diverse mix of assets. Now's a good time to check up on your portfolio and make sure you're not overly concentrated in any single company or sector.
If you are, you may want to unload some stocks that you're overconcentrated in and replace them with shares of companies or industries you want more exposure to.
Of course, we did just say that selling stocks during a downturn means locking in losses. But if you're selling and buying simultaneously, what you lose in the form of selling at a low, you can gain in the form of buying at a low.
Plus, losses in your stock portfolio could result in a tax break. If you cashed out gains at the start of the year, when the market was still up, recent losses could help offset them. It's a good idea to consult a financial advisor to see if it makes sense to sell specific stocks in your portfolio right now.
Make certain you have cash on hand
Any loss you're seeing in your stock portfolio now is merely a loss on paper (or on your laptop screen). But if you’re forced to sell stocks because a need for cash arises, you do risk losing actual money at that point. That’s why it’s important to have a solid emergency fund — ideally, enough cash to cover three to six months of essential living costs.
An early 2025 survey by U.S. News & World Report found that 42% of Americans don't have an emergency fund. If you're in that boat, now’s the time to start stockpiling cash in case it takes the market a longer time than average to recover.
It's also worth noting that several investment banks are now saying the probability of a near-term recession is higher due to recently implemented tariff policies. Recessions can go hand-in-hand with layoffs, so it’s important to have a decent pile of cash around for that reason, too.
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Discover the secretStay focused on the big picture
Seeing your portfolio value decline by $800,000 is not only scary, it can be devastating. But before you take any action, consider where you are in your investing journey.
If you’re investing to fund your retirement and you’re in your 40s, you might have another 20 years until you’re ready to actually use your money. And in that case, there’s plenty of time for your portfolio to recover from recent events.
But your strategy may be different if you’re a year or two away from retirement and this recent market correction is catching you off guard. If that’s the case, it’s smart to sit down with a financial advisor and make sure you don’t have too much of your total portfolio allocated to stocks.
And if so, an advisor can work with you to sell off some stocks strategically and move you into assets that are more stable, like bonds.
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