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5 Things to Think About During a Sudden Stock Market Correction

This image serves to represent the stock market correction that can occur when global events cause financial markets to become volatile.
We discuss common concerns and ways to deal with them when global events cause financial markets to become volatile.

As with any brand new development that may impact global or local economies, there is still much to learn about COVID-19 and what it means for financial markets in the short- and long-term.

In this blog post, we will discuss some of the common concerns people have when global events cause  financial markets to become volatile.

1. Selling All of Your Investments During a Market Correction

When markets make a sudden downward correction, you may feel that you should get out before it gets any worse. Don’t worry, you are not alone. In fact, markets are often negatively affected when many investors (both retail and institutional) rush to sell their investments.

So, what should you do?

Don’t panic. If you work with a registered investment advisor, give them a call to talk about your portfolio and your investment plan.

Before you make the call, take a look at your investments and how they’ve been doing. Think about where you are going, and what you’d like to achieve in the near- and long-term.

Get some questions ready, and try to have a calm, productive conversation.

If you handle your own investments, the same rules apply. You’ll want to sit down and ask yourself these questions before making any rash decisions.

2. Buying Investments During a Market Correction

This image represents what people may want to consider when global events cause financial markets to be volatile.

When markets fall suddenly, you will likely start hearing that this is a buying opportunity. This may be true for some investors, but not for others. Each individual’s financial situation is different, as is their risk tolerance, understanding of the financial markets, and time-horizon.

So, what should you do?

Don’t make a rash decision. If you work with a registered investment advisor, give them a call to talk about your portfolio and your investment plan. Timing the market is difficult for retail investors, especially if you don’t follow it on a daily basis. Your advisor should be able to give you some perspective on market movements and how they apply to you.

If you manage your own investments, you should have a solid understanding of what is happening in the markets and why. Buying and selling based on news headlines or sudden market moves, may result in you buying high and selling low.

3. Buying Investments Based on Historical Market Trends

Historically, investors move to specific sectors during certain market events. Although it’s good to have a historical understanding of what has happened, each market situation is different. For example, the media environment today is very different than the media environment five or ten years ago. Markets can move quickly on current information from a 24/7 traditional and social media news cycle. It often takes time for the full story and its potential economic impact to develop and be understood.

So, what should you do?

Understand your own financial situation, and research any investment you are considering. Make sure you understand it, and that it is the right choice for you at the time. An experienced registered investment advisor can help you make investment decisions and should be able to answer your questions about historical market trends.

4. Be Wary of Fad-based or Specialized Investments

New investment products are being developed by the financial industry daily. For example, there are products that are meant to act as a hedge in up- or down-markets. These products are complex and difficult to understand.

Furthermore, media outlets or discussion on the internet or on social media will often feature companies or industries that might be affected by a crisis – in the case of COVID-19 it could be pharmaceutical companies, medical supply companies, the travel industry, etc.

So, what should you do?

Investing in a company or product that you’ve recently heard of or read about, particularly if the company or product is new or has a limited history, may have unexpected or undesired results.

If you are considering investing in something you don’t understand or have much knowledge about, it’s probably a good idea to speak to a registered investment advisor. They should be able to help you understand the product, company, or industry as well as whether it fits into your portfolio and your investment plan.

If you are investing on your own, be sure you research and understand any product or company you invest in, especially if it’s a part of a current market trend. Investment trends can end quickly, with little time for investors to move their money out of the market, company, or industry.

5. Be on the Lookout for Scams when Markets are Choppy

Fraudsters exploit fear or uncertainty in the news, like the uncertainty related to the unfolding global COVID-19 situation. They know you are worried about your financial future and the safety of your investments.

To get you into their scheme, fraudsters will offer safety and guarantees, like high monthly interest payments that can’t be achieved legally. Or, they will make up investment offers that mirror current market trend or media focus. These offers can turn out to be nothing more than a Ponzi scheme or other type of investment fraud.

So, what should you do?

Familiarize yourself with the five Fraud Warning Signs. Understanding how fraudsters operate will help you protect yourself from falling for an investment fraud.

Stay on top of the news. Look for information from securities regulators regarding recent scams will allow you to know what is out there.

On Friday, February 28, 2020, the North American Securities Regulators (NASAA) warned investors to be aware of con artists looking to profit from fear and uncertainty. The alert provides investors with three questions to ask before making a new investment.

Report a Concern

If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Contact Centre at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.

InvestRight.org is the BC Securities Commission’s investor education website. Subscribe to receive email updates from BCSC InvestRight.

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