The most important thing you need to get through a stock market correction

Many people entered 2022 thinking the stock market was heading for a full-blown crash. And so far, that hasn’t happened.

But it has been a volatile number of weeks for equities, with the market plunging into correction territory. And at this point, it’s hard to predict when things will calm down.

While some of the recent volatility we’ve seen can be attributed to earnings disappointment and unemployment news (in a somewhat surprising turn of events, stocks fell on the back of positive growth in employment), the reality is that the shares were due for a correction for some time. And also, corrections are actually quite common, and many seasoned investors know not to get rattled.

If you are a new investor, or a naturally capricious investor, the events of the past few weeks could shake you to the core. And you can also worry about future volatility. But while it’s hard to predict when the value of stocks will drop, it’s easy to take one key step to protect against market corrections.

Get ready to ride these waves

The only important thing to tell yourself during a stock market correction is that you won’t lose money unless you sell assets for less than you paid. To put it another way, if you leave your stocks alone during periods of volatility, you might not lose a penny.

But to put yourself in a position where you’re able to do that, you’ll need to make sure you have enough cash on hand. That way, if unexpected expenses come your way or you lose your job, you won’t have to rush to cash in on investments to find the money you need.

That’s why, as a general rule, it’s a good idea to accumulate three to six months’ worth of bills in a savings account. Although you won’t earn much interest on that money (especially not these days), you’ll be securing your capital so it’s there when you need it. And while you could technically keep that money in your brokerage account uninvested, you’re better off stashing it in savings so you’re not tempted to buy stocks with it when market conditions turn favorable.

And to be clear, a stock market correction is actually a great time to add investments to your portfolio – but you shouldn’t use your emergency cash to do so. On the contrary, you should always keep this cushion, because it can not only help you avoid debt, but also avoid capital losses.

Will stocks calm down soon?

It’s hard to say. We are still in the midst of a pandemic, and that alone could lead to prolonged volatility. And so, the best way to lighten your personal stress load in the short term is to keep your emergency fund well-stocked. That way, if the market continues to swing wildly, you’ll be able to sleep at night knowing you’re covered and won’t have to mine your portfolio at the worst possible time.