15 Reasons to Invest During a Stock Market Correction

If you're worried that another stock market correction could occur in the near future, the possibility certainly isn't out of the question. Given the heightened volatility we've seen in the market in recent months, the signs that a period of correction or even a crash may occur have been building.

But that doesn't mean another correction is, in fact, on the horizon. If you're worried about how to handle your portfolio in the event one happens, here are 15 reasons to keep investing during the next stock market correction.

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While corrections can impact businesses of all sizes, great companies with strong industry/business tailwinds and leadership won't be undone by such an event in the market. This is where it's vital to separate the movement of shares of a stock versus changes in the underlying business that are driving the price down.

Put another way, a strong business will see shares rebound eventually and a correction can provide an opportunity to allocate more capital toward such a stalwart. You shouldn't sell a great stock simply because shares go down independent of any changes to the direction of the company itself.

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While no one can predict the exact duration of a stock market correction, these can last anywhere from a period of weeks to months. Looking back at the history of the stock market can provide some valuable insights. We know that corrections can vary in duration, but they have always ended. Sometimes the rebound is slow and gradual. Other times, it can take anywhere from a few weeks to a couple of months.

This is a common refrain during periods of stock market correction, but is nonetheless true. Stock prices across a variety of industries tend to come down significantly during a correction. That doesn't mean the underlying businesses of great companies have suddenly changed. And the amount of stocks trading on sale can present a myriad of compelling buying opportunities during these moments in the market.

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It's no secret that investors are struggling with a wave of emotions right now, and fear is certainly one of them. Fear can cause investors to do any number of things, including pulling out of the market on impulse. Making decisions about your portfolio on the basis of heightened emotions like panic or fear will never serve you well, but the reality is that this is the response many investors experience during corrections.

Knowing that, you can retain a significant advantage by continuing to consistently invest in great businesses while other investors are making rash investment decisions or selling off their stocks. And if you're low on investing capital or just don't feel comfortable touching your portfolio in the moment, sitting back and waiting out the correction can also give you the upper hand over those who panic sell and realize significant, durable losses.

The stock market not only has a robust history of recovering from corrections but also has shown over time its ability to jump higher than before the period of correction occurred. Of course, forecasting when that jump will occur is impossible.

So don't waste time trying to guess when the bottom and rebound will occur. By staying in the game and investing consistently throughout the ups and downs, you can benefit from both.

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When you're investing in companies for a minimum of three to five years, and as long as decades, the reality is that a correction is a very short window against the overall span of your investing journey. Corrections aren't fun, and yes, they can impact your portfolio in the short term.

Beyond investing in companies that you love, understand, and believe to be great long-term investments, you should also be regularly checking in on those investments and the risk and rewards they lend to your portfolio, and evaluating the overall balance of your holdings.

In taking this constant approach to building and managing your portfolio, you will be better prepared for the down moments in the market, and enjoy greater peace of mind when in these periods.

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In a world where all investors were equipped with crystal balls or some other future-foretelling mechanism, there might be a way to perfectly time the ups and downs of the market to enjoy the right amount of upside without experiencing the volatility in between. Of course, that's not how investing in the stock market works, and investors don't have a crystal ball.

Even in a market where institutions like hedge funds seem to have the upper hand, you as an individual retail investor don't have to yield your advantage.

In fact, one of the easiest ways to yield that advantage is to give up, throw in the towel on the market, and pull all your money out. When you keep investing despite all market tides, you'll be ready when the recovery does occur, and you'll have continued to expand your holdings in more great companies that can maximize your returns in those moments.

Just as timing the market bottom is impossible, determining when and where the rebound will begin is equally unfeasible. The signs of the rebound may appear, but that doesn't mean the correction is over. And in waiting to get back into the market until the market rebounds, you could just as easily miss the beginning of the curve back upward.

If this all sounds a bit too complicated, that's because it is. Don't overcomplicate investing.

When you make it simple -- buy 20 to 25 great companies, hold onto them for at least three to five years if not longer, and invest consistently in both the market's highs and its lows -- you can enjoy sustained and favorable returns as an investor while others are trying to utilize in-depth but ultimately futile market timing strategies.

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There are many ways to determine the hallmarks of a great company that you want to invest in. Bear in mind, every investor's risk tolerance is different, and the types of companies you want to invest in will likely be very personal to you. For example, your friend might like investing in slower-growth, dividend-paying healthcare stocks, while you might prefer high-growth, higher-volatility tech stocks.

In addition to looking at key elements like balance sheet, financial history, leadership, culture, and the industry or industries in which the company operates, there's another easy way to distinguish the best companies for your preferences and portfolio.

If you research a company in depth but aren't comfortable holding onto it for the bare minimum of three to five years, you may need to take a second look at your investing thesis or consider another company that better fits in with your investing strategy and risk tolerance.

The balance of your portfolio will change over time. Even if you follow the simple method of dollar-cost averaging, which is regularly investing a set amount of money into stocks, that balance will fluctuate as shares rise, fall, and compound at different rates.

You should regularly revisit the balance of your portfolio to determine that it still fits in with your financial goals and appetite for risk. In doing so, you can not only assess areas in your portfolio that might need some rebalancing but also ensure that the thesis for all the stocks that you own holds true.

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Just because a stock goes down during a correction doesn't mean it's a fundamentally bad investment or that the business is down for the count. That being said, prolonged periods of downward volatility in the market can present hurdles for businesses in a variety of sectors, and reveal ones better equipped to handle these moments than others.

Amid the broadly fluctuating share price action we've seen from companies of all sizes in recent months -- driven partly by factors like rampant inflation, geopolitical unrest, lower access to capital, ongoing supply chain disruptions, and volatile investor sentiment, to name a few -- fundamentally great businesses are still apparent.

Distinguishing short-term headwinds from long-term factors that can cripple a business is key to becoming a successful long-term investor and resisting the urge to sell stocks you own based on share price changes alone.

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A market correction is painful in the moment, but it's not the worst thing that can happen to a long-term investor. If you're low on capital or emotions are heightened, you can simply sit back and leave your portfolio alone during a correction. Otherwise, if you're in a place where you can invest more money into your portfolio, a correction can be a great opportunity to do so.

Just remember, a bargain share price doesn't tell you whether or not a stock is a great buy. Even in the middle of a correction, you should still be doing ample research before you buy a company and ensure that the business is one you're intent on holding for a period of several years or longer.

Here's the thing: Stock market corrections aren't an anomaly. In fact, they are a normal part of the cyclical stock market and have occurred on average every two years over the past seven decades.

In short, corrections are a fairly regular event in the stock market that long-term investors are likely to contend with multiple times over the course of their investing career. Knowing that, investors can look at these windows in the market as opportunities instead of something to be feared.

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We know that market corrections happen once every couple years, on average. Sometimes more, sometimes less, depending on the particular window you look at. But each correction has had its own defining arc. Just because one correction is relatively short doesn't mean the next one will be, and just because one correction is slow to end doesn't mean the next one will be.

These are variables in the market you can't control. What you can control is how, when, and where you invest. Consistency is key, and you don't want to risk missing the best days in the market by cashing out during a turbulent period.

Wonderful companies with solid cash flows, favorable balance sheets, strong and varied catalysts for growth, and robust leadership can survive a correction or crash, even a prolonged one. If a business you own or want to own checks these boxes -- and importantly, aligns with your personal investing strategy, risk tolerance, and portfolio goals -- a depressed share price shouldn't stop you from buying in. On the contrary, this may be just the time to scoop up shares.

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The reality is, despite the earth-shattering predictions from household names on Wall Street, no one can foretell with exact certainty what the future will hold. But, just for the sake of argument, let's say that another market correction could be in the offing.

Stick to your investing strategy. Keep up-to-date on the companies you own and the companies you want to own. Check the balance of your portfolio. Has your risk tolerance changed, or are you comfortable with the current level present in your portfolio? Does your investing thesis hold true for all the stocks in your portfolio, or has it shifted for any? If so, why?

Asking yourself these questions will not only help you ensure that you've prepared your portfolio for the next correction or crash but also know exactly the types of companies you want to buy if and when the next one does appear on the horizon.

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