When talking about the market sell-off, it’s important to understand the difference between a bear market and a market correction. A bear market is when the stock market is down 20% from its highs. A market correction is when the stock market is down 10% from its highs. Currently, we are experiencing a bear market because the S&P 500 dropped more than 20% within the last few weeks. Bear markets can last anywhere from a couple of weeks to a couple of years. In 2020, there was a bear market that lasted 11 days, but when we were in the financial crisis, the bear market lasted 600 days. It just depends on the situation.
How do we handle the market sell-off? It all starts with financial planning and ensuring you have a good financial plan that is equipped to deal with these kinds of markets. This way, when bear markets happen, you won’t have to worry as much. Start with reviewing your plan, and see if you can continue saving as much as you need to meet your retirement goals. Next, make sure to turn off financial news media because if your plan is working, you don’t need to get worried over the news. Stay informed, but don’t hyper-focus.
Ultimately, don’t freak out and only invest money that you won’t need within the next five years. When investing for the long term, the market is going to go up and down. This is why it’s called investing and not saving. We just have to be patient and wait it out, because time and time again when the market goes down, something will happen to push it back up.
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