The Investment Scientist

How to Handle a Stock Market Correction

Posted on: May 4, 2022

From the peak, Nasdaq is down about 24% and the S&P 500 is down about 14%. I am sure when you read your investment statement, you will feel queasy and wonder if you should stay invested. I think this is a good time to review my wardrobe theory of investment. Here is what I wrote in December 2018:

Treat your investment portfolio the same way you would treat your wardrobe…

For simplicity’s sake, let’s say you acquire your entire wardrobe from Neiman Marcus. If Neiman Marcus had an across-the-board 50%-off sale, would you throw up your hands in despair and say, “Darn it, my entire wardrobe just lost half of its value. I better sell it all at the flea market or I will lose everything?”

I am going to bet you won’t. In fact, you will probably race back to the store and pick up a few more pieces at half price. This is exactly the same attitude you should take with stock market corrections (or bear markets). They are a temporary discount that you should take advantage of to acquire more assets.

I wrote that “theory” partly in jest, but truly anyone who has kept investing in bad markets has done well. Just look at the S&P 500 chart below. The bottom line is this:  Your well-being in retirement will depend on how many productive assets you own. Stock market discounts like the one we are seeing now are a great opportunity to accumulate more productive assets on the cheap!

Schedule a 2nd opinion financial review, buy my wealth mgmt books on Amazon.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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