Can you stay the course in a market correction?

As I type these words, the Stock Market is in “contraction territory”, or what is known as a correction, 10% below its recent high.

In my own portfolio, the effect is quite devastating: my net worth is 8% down since its latest high, but it doesn’t stop here. It seems in periods of stock trouble, investors rush to the Japanese Yen. The USD/JPY is now at 117 Yen for a dollar, compared to 124 last week. That’s a 6% drop of the dollar to the Yen. This matters to me because I intend to move back to Japan with my family once we reach Financial independence. But the 8% drop of my portfolio, accumulated with the 6% drop of the Dollar, means I’m now only halfway to financial independence. I was so close, only a week ago.

Looking at the raw numbers, it just looks like I’ll have to work 3 additional years to reach financial independence. Of course, this isn’t the full story here. It is more than likely that the stock market will recover, accelerate again sometime soon, and I’ll get back on my feet.

Nevertheless, this is showing a huge mistake in my own portfolio: relying on my money being in dollars with the intent of living in Japan adds some significant risk to my wealth. I’ll have to figure something out here, and I’m open to suggestions. My bet for now will be to have 1, maybe 2 years worth of expenses in cash, in Japanese yen. When the dollar is strong I can sell, when the dollar is weak I’ll use my Japanese cash (and replenish the cash stash on a strong dollar).

Independently of my “Yen” situation, the market is in a bad situation today, and Wall street is freaking out. This is apparently the worst week on the stock market since 2011, and for me this is the first time I’m seeing my portfolio value being less in total than what I put in it. Yup, I’m negative for the first time in 7 years, and it hurts. If I didn’t know better, I’d think my investment strategy has failed me and that it is time to sell before I lose even more.

To most of the people reading this blog however, you know this is the worst possible time to actually freak out and do something you might regret: selling. Instead, smart people will probably use this contraction as an investment opportunity. I am myself looking for ways to get a bit more cash this month, to try and buy more than I would usually do. Is this a good use of the emergency fund?

Contractions like this one are a good test of your taste for risk, a good way to confirm if you have enough (or too much) bonds. It is tough to stay the course in such a situation, but those who do have historically been rewarded. Maybe the best option, as many have mentioned below, is to stop looking at the stock market on a daily basis. Instead, if you check it every 3 months or so, you’ll in general see it only go up.

How has your wealth been impacted by the recent selloff? what is your strategy to mitigate risk to your portfolio?

7 Comments
  1. Financial Velociraptor
    • StockBeard
  2. Bryan @ Just One More Year
    • StockBeard
  3. RetireJapan
  4. Andrew@LivingRichCheaply
  5. Mr. Utopia @ Personal Finance Utopia

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