2022 was a challenging year for investors and many are happy to welcome 2023.

Last year was rife with challenges and worries. 40-year high inflation, stock market volatility, housing market correction, geopolitical issues and 280 interest rate increases by Central Banks around the globe. 2022 marked the worst year in the markets since the 2008 Great Recession and the 4th worst in the history of the S&P 500.

January had the best start to the year since 2001 with the S&P 500 returning 6.18%. This is already a better start to the year than 2022. January 3rd, 2022 marked the first and best trading day last year. While the New Year brings hope and opportunities, we believe we still have volatility in store for us this year.

The impact of multiple interest rate hikes is taking effect with economic growth slowing, layoff announcements, and a deterioration in corporate earnings. Banks globally are calling for a recession in 2023. So, what does this mean for the stock market?

Since the 1920s, the S&P 500 has bottomed in every recession with the exception of two instances when the bottom was formed after the recession ended. Typically, the bottom occurs when the recession is 5-6 months from ending.

Here are 5 proven strategies to survive a market correction:

 

1. Stay invested

Investors who maintain perspective and stay mindful of their investment time horizon have a better chance of reaching their investment goals than those who react to short-term market fluctuations. The longer an investment is held, the less chance it has of incurring a negative rate of return.


Bloomberg, RBC Wealth Management

Missing just the 10 best days in the market over the past 10 years would have reduced returns significantly.

Based on the annualized returns of the S&P/TSX Composite Index for 10 years, ending January 31, 2022. Bloomberg, RBC Global Asset Management

2. Put stock market corrections in perspective

While market corrections can be scary, they are expected to occur periodically. Since 1966, the average correction has lasted 15 months, far shorter than the average bull market. The average bull market lasts 2,069 days whereas the average market correction lasts 446 days.

Source: Schwab Center for Financial Research
 

3. Remember your investing goals

While market corrections tend to be short-lived, they can rattle some investors. By selling some investments in advance, risk can be reduced in your portfolio. Investors are investing to make money and are never sad about taking profits. By having a plan in place, you can make a sound decision when the market gets volatile.

 

4. Diversify your portfolio

We believe that you should have a diversified mix of stock, bonds, cash, and other investments.  Diversify your portfolio within those different types of investments to include different industry sectors, geographic areas and investment styles. Financial markets do not move in tandem with one another and individual asset classes will perform differently in any given year. At any time, one asset class may be leading the market, while the others lag.

Diversification can help reduce the impact of market volatility on your portfolio. As the chart shows, it can be difficult to predict which asset classes will the lead market each year and which ones will underperform.


Source: Fidelity
 

5. Buy the dip

We saw stock prices drop across the board in 2022. Many great companies get dinged in short-term market drops but tend to perform very well over time. 2022 was a devastating year for the tech sector. The tech heavy index, NASDAQ lost more than 32%. For the long term investor, this presents an opportunity to add favourite household names at steep discounts. Start the car!

Whenever you’re ready, here’s 1 way we can help.

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