Why stock volatility poses an ‘opportunity’: investment analyst

Stock market corrections are a common occurrence that can cause panic among investors. However, it is important to remember that these corrections are a normal part of the market cycle. According to Mark Riepe, head of the Schwab Center for Financial Research, there have been 27 market corrections since November 1974, with an average frequency of one every two years. While some corrections have turned into bear markets, defined as a downturn of 20% or more, most have not escalated to that level.

When faced with a market pullback, it is essential for investors to avoid catastrophic thinking. Brad Klontz, a certified financial planner and behavioral finance expert, suggests that pullbacks can actually present an opportunity to invest at a lower risk. Buying stocks at a discount during a market dip, also known as “buying the dip,” can be a strategic move for investors. This is particularly beneficial for young investors who have time on their side for stock prices to recover and grow.

Christine Benz, director of personal finance and retirement planning for Morningstar, advises investors to be mindful of their stock/bond allocations during market fluctuations. While some investors may seize the opportunity to invest in undervalued stocks during a selloff, it is important to adhere to the asset allocation targets set in a financial plan. Diverging from these allocations can introduce unnecessary risk into an investment portfolio.

Overall, it is crucial for investors to stay informed and make calculated decisions during market corrections. By understanding the nature of these fluctuations and staying true to their investment strategy, investors can navigate through market volatility with confidence.