Are you planning for a stock market correction

dunstonh

Are you planning for a stock market correction

No.  Corrections occur, on average, every 16 months.  

If you are nervous of corrections, then it suggests a risk profile and knowledge issue that needs to be addressed.

 Right now lots of people with stocks , particularly certain trackers and tech are anxious about a big correction

It's not a correction they are worried about, but a crash.

But many seem to be very relaxed , citing corrections are normal, and can't be predicted 

Which is correct.   Noboby should be concerned about corrections.   Crashes, on the other hand, can be more concerning.  However, there was a crash this year between January and April (S&P500 down 22.23%).  What did you do in the lead up to that?   

dont_use_vistaprint

jaypers said:

Not really……if things drop I’ll buy more as they always go back up again! 

Yes, it does seem that they do. I guess as long as you don't need your money before the recovery that's fine .

are you holding a lot of cash/high liquidity so that you can quickly capitalise and go on a spending spree when it happens ? I.e., are you not maximising  in things while they're growing so that you can go on a spending spree when they are cheap. or are you gonna wait for the crash to happen and sell everything just before ? I'm not quite following the logic ;-)

Alexland

kempiejon said:

Martin Lewis is doing stocks on TV to the great unwashed.

And the chancellor now thinks S&S investing is such a sure bet it's obvious that people should be nudged to doing it via their ISA allowances.

We don't have shoeshine boys anymore to give us share tips but there are no shortage of social media influencers telling people to just buy a tracker fund to get rich without bothering to warn people on what drops they might see on the way. There should always be the long 50%+ crash warning (or even higher with thematic or sector specific funds) but recency bias and fast recoveries has caused people to stop mentioning it. Nobody seems to care about valuation or margins of safety anymore it's just turned into a get rich pile-in based on the past 5, 10 or 15 years return.

chiang_mai said:

I don't believe for one moment that risk tolerance is a straight line event that doesn't change.

There are 2 things going on with risk - people's tolerance/capacity reducing as they get nearer withdrawal and more interestingly the risk (and perceived risk) of each asset class changing due to recent performance and economic circumstances.

A few years ago bonds were perceived as low risk (as textbooks and portfolio theory has always told us and due to their low daily volatility) yet the steady wind-up to crazy high valuations went less noticed and caused them to be high risk particularly for long duration bonds which have since seen 80% drops.

Now equites are being perceived as low risk despite classic investing ratios going into the red zone. This time it's different etc. As we saw from the 4 decade bond market wind up such unusual situations can run for a very long time so it's hard to know how much longer US equities can continue to perform so amazingly but bull markets end with a crash eventually or at least a prolonged period of very disappointing returns.

Markets are great at teaching investors the wrong lessons and then beating them senseless.

But despite that investing is still the most lucrative hobby I know.

dont_use_vistaprint

dunstonh said:

Are you planning for a stock market correction

No.  Corrections occur, on average, every 16 months.  

If you are nervous of corrections, then it suggests a risk profile and knowledge issue that needs to be addressed.

 Right now lots of people with stocks , particularly certain trackers and tech are anxious about a big correction

It's not a correction they are worried about, but a crash.

But many seem to be very relaxed , citing corrections are normal, and can't be predicted 

Which is correct.   Noboby should be concerned about corrections.   Crashes, on the other hand, can be more concerning.  However, there was a crash this year between January and April (S&P500 down 22.23%).  What did you do in the lead up to that?   

This seemed  to be a specifically about Nvidia threat from China and Donald Trump playing around with tariffs ? Doing the usual bad guy followed by the Good Guy routine .... it was nothing like 22% on my portfolio more like 10%, While it  might fit your definition of a crash for being over 20%. It really was not one 

dont_use_vistaprint

Eyeful said:

1. Your investments should not cause you to worry or lose sleep at night. 
If they are you need to reduce the level of risk you are taking.

2. I follow this simple guidance I state above. As I have told you before, I just ignore the financial noise in the markets and get on with life.

3. Your posts suggests you do not want to go down this route.
That's fine for you but expect a lot of worry & grey hairs along the way. 

I never lose a moment sleep over my investments, I'm talking about planning not anxiety.

no one should invest more than they are happy to lose of course, but once you have enough, with more you can do more for those you care about. 

I'm happy to stay invested primarily in stocks even in retirement with about five years of cash and a very small pension. But I was thinking this spring of reducing it to about 60%. Even with a lost decade or 2  I will still need money when I'm old so it might as well stay in the high risk stuff

LHW99

And the chancellor now thinks S&S investing is such a sure bet it's obvious that people should be nudged to doing it via their ISA allowances.

What could possibly go wrong?

dunstonh

This seemed  to be a specifically about Nvidia threat from China and Donald Trump playing around with tariffs ? Doing the usual bad guy followed by the Good Guy routine .... it was nothing like 22% on my portfolio more like 10%, While it  might fit your definition of a crash for being over 20%. It really was not one 

A stockmarket crash is defined as being over 20%  (a correction being over 10% and a pullback being over 5%).   The S&P500 fell by from peak to trough by 22%.  Global markets did not fall by as much and did not crash.

So, clearly the S&P500 did crash.  Even if your own portfolio did not fall by over 20%.     The likelihood being that your portfolio didn't align with the S&P500.  Hence why it was different, plus, movements in Sterling also mean UK investors don't get S&P500 performance in the same way dollar-domiciled investors do.    (US equities being one of the worst countries/regions in 2025 for Sterling investors).   

When markets fall, if it is tech-driven, then those that are US equity-heavy will almost certainly fall harder and will probably take much longer to recover.  If that worries you, then go lighter in US equities.     Many professional portfolios already are because a tech stocks crash will also likely result in the dollar falling, which will magnify the loss for UK investors.

In March 2008 to Feb 2009 (the worst 12-month period for over 100 years), 100% equities (to market cap) fell by 37% (for UK investors).  The peak-to-trough was over a longer period and was closer to 43%.  A very similar amount to the loss period in the original dot.com crash period.     If you cannot handle a loss like that, then reduce your equities content.     

tigerspill

I have continued learning in the past year.  This has allowed me reassess my finances in the past couple of months.  I previously had a serious case of FOMO (Fear of Missing Out) and was probably invested a little bit above my risk appetite in equities and bonds as a result.  My bonds were part of MA funds as I didnt fully understand them.
I gave myself a severe talking to and have now to a large degree got past this FOMO - partly due to the risks of tech stocks dropping.
I have now a plan that is much better tuned into my situation.  Specifically, locking in 10 years of funds (based on desired expenditure - which is likely higher than needed) with very limited risk (Savings and ILGs).  Beyond that I am in mainly global equity trackers and still some MA funds.
I have been reading a lot recently on the possible over valuation of tech companies and I guess that any correction here would have a siginificant impact on my equities.  But with my restructuring of my finances, this no longer really concerns me as I wont need my equities until some time away.  
If equities continue to ride high, I will convert more into ILGs in April when I have new ISA allowances available where I will sell equities or MA fund units from my GIAs to use my and my wife's CGT allowances and move these to ILGs in our ISAs.  I may decide to build out my savings / ILG ladder to 12 or even 15 years.

So to answer the question - I have recently restructured my finances and that has had the positive consequence of significantly derisking me from a potential correction or crash in stocks - and I guess in particular tech stocks.

hallmark

It's easy to go round in circles and end up tied in knots with this stuff (speaking from experience)

Even following advice that's generally regarded as sound can be tricky, for example

"Be fearful when others are greedy and be greedy when others are fearful"

Even if you want to follow that advice, it's very unclear exactly how:

Let's say you've been invested awhile and are currently sitting on large gains.  What's the greedy move, taking profits and moving to cash now in the hope of buying back in if there are falls?  Or continuing to stay invested hoping for even bigger profits?

A deceptively tricky question IMO. You could argue that either approach is greedy.  Or fearful.

Bostonerimus1

I've lived through many "corrections" and the way I planned for them was to rebalance my asset allocation through them. People approaching or early in retirement should remember that they could easily have 30 years ahead of them and that sensible drawdown methods take market corrections into account, so being too defensive can be a mistake.