A stock market correction is defined as a decline of over 10% or more.
We are approximately there now. SPY, an exchange-traded fund that tracks the S&P 500, is down from its recent highs by about that much.
Historically, 5 percent drops have occurred more than twice a year; 10 percent, twice within three years; 20 percent, about once every three-and-a-half years; and 30 percent, once every five years.
Monday Morning Program members might start getting ready to rebalance their asset allocation and buy one of the increasingly cheaper proxies of the American economy. Excellent examples of such proxies are exchange-traded funds (ETFs) that track the US economy.
There are more ETFs today than individual stocks, but only about six or so represent the US economy reasonably well. Among these, SPY is the largest and the most actively traded one. It is our best choice. For interested members, it is possible to sell covered calls effectively on SPY shares.
We don’t need to look for a specific percentage decline. It does not matter if we rebalance at a 10% drop for 8% or 7%. Rebalancing is the key here.
We need to remember that market declines take place regularly. The main reason that investing in the market offers such good results, in the long run, is that we have to face losses in the short run. The risk/reward thing.
The money we need in the next 3 to 5 years does not belong in the market.Three to five? The choice depends on the investor’s risk tolerance capacity.
With the habits of the Monday morning program, luck hardly matters.
Good luck!
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