Beyond a Market Correction, Moves to Make Now

The NASDAQ index has officially moved into correction territory. That means a drop of more than 10% from its most recent high in December 2024. The NASDAQ is the home of many of the best-performing technology stocks of the last two years. It’s also a home for many meme stocks that poke their heads up when markets get frothy.

Even if you’re an experienced investor, moves like this can shake your conviction. However, before you consider your next move, here are some important things to consider.

Don’t Sell Out of Panic

This is easy to say but can be tough to do. If your portfolio is down 10%, 20% or more, particularly in a short period of time, it’s tempting to believe that you’re better off cutting your losses. However, this is rarely an effective strategy for a couple of reasons.

First, if the company has been trading for some time, look at its long-term stock chart. Chances are there will be some peaks and valleys, but the trend is likely in favor of growth. That's why investors will say time in the market is greater than timing the market. Markets reward patience. The biggest money is made by buying near the lows and selling near the highs, not vice versa.

Second, many stocks, particularly volatile technology stocks, have a history of corrections. Volatility is the price of growth. In many cases, the stock retraces back to the prior level and pushes to even higher gains. If you sell, you’ll miss out on that growth.

Remember Why You Own the Stock

Investors who do their due diligence before buying a stock have specific reasons for owning the stocks they own. If those reasons are still in place, then it’s usually better to let the correction run its course.

A good example of this in the current correction is NVIDIA Corp. (NASDAQ: NVDA). NVDA stock is down more than 23% in the last three months and is now down nearly 20% in 2025.

The natural question is why; the answer seems to be that the stock was simply overvalued. That will lead many investors to take some profit. But once that selling starts, it can take on a life of its own.

If investors still believe that the AI revolution is in its early stages and NVIDIA will continue to play an essential role, the best course of action is to hold on to the stock. And if it gets below their average cost, they can selectively buy to lower their average cost and set themselves up for larger gains when the stock inevitably turns around.

By contrast, investors who believe that a stock no longer fits their buying thesis may consider selling it altogether. Continuing with our NVIDIA example, if investors believe there will be significantly less spending on AI infrastructure than previously forecast, now may be a good time to sell NVDA stock.

Remember the “D” Words:Key Strategies for Market Corrections

Not selling out of panic doesn’t mean that investors should just give their portfolios a pass. Market corrections should be an opportunity to optimize their portfolios. To do this, remember these three key “D” words.

Diversification: In 2025, many investors may have too much exposure to technology stocks, particularly the Magnificent 7, which are aptly named because that’s where the growth was. However, this correction may be a time to rotate out of technology and into other sectors that can give a portfolio more balance.

Defensive: Since the 2024 election, there’s been a rotation out of technology stocks. That sell-off is accelerating. And right now, that means putting money into defensive stocks. These are stocks from companies that make products that consumers will always need.

At this time, consumer staples stocks such as The Coca-Cola Co. (NYSE: KO), Mondelez International Inc. (NASDAQ: MDLZ), or Procter & Gamble Co. (NYSE: PG) can be attractive options.

Dividends: Many defensive stocks have another attractive quality: they pay dividends. Dividends are a portion of a company’s profit that gets paid out in cash to shareholders. Dividends give investors a regular source of income that they can use for their expenses, or they can reinvest and allow their investment to benefit from compounding.

Consider Alternative Investments

During times of volatility, investors may choose to invest in alternative investments such as bonds and precious metals. Bonds tend to have an inverse relationship to stocks, so when stocks are falling, bonds tend to increase in value. Precious metals are considered to be a store of value and can be attractive to investors during times of high inflation. 

Make a Stock Watchlist

Corrections often create opportunities for investors to invest in a company that had become too expensive to invest in previously. That’s one reason investors have watchlists. This can contain stocks to buy if the price becomes more attractive.

For example, an investor was excited about Tesla Inc. (NASDAQ: TSLA), but it seemed too overvalued when the stock was trading for over $475 a share. However, as of this writing, it’s down over 43% for the year, and it's trading at around $226 per share.

Although there are still questions about its valuation, this may be a much more attractive entry point, particularly since investors don’t know when a reversal may occur.

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