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Whenever the market hits the official correction level — a 10% drop, the question becomes, is this the start of a true bear market or is this just a correction bottom and now is it time to buy? Historically corrections happen 2-3 times a year we should be used to this, right?

I came across this chart the other day. It is parsing market activity down to daily volatility. This is looking at when markets drop 4% or more, in a day, and then rebounds in the same day to end positive. This happened last week, on Monday, January 24, 2022.

Nasdaq Composite Chart

The bottom line is pretty ugly. 100% of the instances since 1997 the market was lower one month out. Not a market crash lower, but lower.

My apologies for the fuzzy graphic. I was not able to get a clear picture of the point I’m making.

The issue I have with this type of analysis is that it is pretty simplified to talk about "the market" as if everyone is affected in the same manner. "The Market" is a pretty big place. Stocks can be divided up into many different styles and categories. We have seen that certain types of stocks have held up pretty well this year, like value stocks. Others have been punished, for example, high leverage, high growth, and growth stocks. How one reacts depends entirely on what type of investor you are and the positions in your portfolio. Some stocks should be sold now, but we see others that are worth accumulating. At this point we don't see this as an across the board, sell everything bear move.

Investment Moves

Now is the time to increase your 401k contributions. Free up cash flow and add it to your 401k account. Buy stocks while they are on sale. Continue to do so at least until the market regains a positive return on the year. Longer if you can.

If you have cash on the sideline, consider holding onto it until we see a change in sentiment. Plan now as to what to buy so you can act quickly if the market rallies.

If you're living off your investments, plan now to potentially cut back on spending and on withdrawals, should this develop into a full-fledged bear market.

If not properly handled a bear market can wreak havoc on retirement portfolios.

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