3 reasons not to panic in this ASX 200 correction

Corrections can be scary, but can also give us some buying opportunities…

| More on:
A smiling woman holds a sign saying 'Don't panic', indicating unwanted share price movement

Image source: Getty Images

The past month has been a dark one for ASX investors. As most readers would be aware, the ASX has been in the grips of a nasty share selloff. With today’s near-2% slide for the S&P/ASX 200 Index (ASX: XJO), we have now officially entered ‘correction’ territory. A correction is arbitrarily defined as a fall of 10% or more for an index’s most recent high. And given the ASX 200 has gone from 7,632.8 points back in August to a low of 6,758.2 points today (a drop of 11.46%), we are well and truly in correction territory.

So this is undoubtedly a tough time for many investors out there. Share market falls of this magnitude usually impact most investors’ share portfolios in a meaningful way. And it’s never fun to see the shares you have bought with your hard-earned dollars lose their value at the whim of the market.

But it’s of paramount importance from a wealth-protection standpoint not to let disappointment in what the share market has done become full-fledged panic. So here are 3 reasons why investors shouldn’t panic right now:

3 reasons not to panic during this ASX 200 correction

Look to history

Although it can be hard to see the forest for the trees on days like today, remember, share market corrections and crashes are a normal and healthy part of the investing journey. The ASX’s history is littered with bumps and falls, corrections and crashes. And yet, the markets have never once failed to overcome a previous all-time high.

We all remember the very frightening COVID-induced crash of 2020. That saw the ASX 200 lose more than 30% of its value over just a month or so. And yet, looking back, it took just over a year for the ASX 200 to fully recover from that crash and climb to previously-unseen highs. No one knows how this current period of turbulence will last for. But history tells us that time eventually heals all share market wounds.

There are always dividends

Even though your share portfolio might have taken a nasty haircut recently, remember that there’s not much in the way of returns if you have your cash in the bank instead. With interest rates still at record lows, many investors would have bought ASX shares to put their cash to work and get some dividends in return. And companies are still paying dividends. So even though it doesn’t feel like it, your cash is still at work, and potentially delivering dividends too.

This could be a buying opportunity

The legendary investor Warren Buffett is famous for doing most of his share buying during market corrections or crashes. In fact, he once likened it to ‘putting out a washtub when it’s raining gold’. The reality is that while buying shares during market corrections can be downright terrifying, it’s also usually some of the rare occasions where good-quality companies go on sale at cheap share prices.

So keep an eye on your best investing ideas. Hopefully, these are companies that have such strong business fundamentals and pricing power that they can handle almost anything the world throws at them. You might not get a cheaper price to buy those companies than what we have recently seen. They don’t say that more millionaires are minted during share market crashes than at any other time for nothing! 

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on How to invest

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
International Stock News

Investing can be brutal at times, but don’t give up now

Missing out on the market's best days can be costly.

Read more »

A mum levitates in a state of calm above the kitchen in her home, while the busyness and noise of kids, food and the chaos of everyday living whirls around her.
How to invest

‘Do not panic’: Experts explain how to stay calm and carry on investing amid rising interest rates

At the current inflation rate, the cost of living in the United States will double in just over eight years…

Read more »

A group of young people lined up on a wall are happy looking at their laptops and devices as they invest in the latest trendy stock.
How to invest

Direct indexing: What is this latest investing fad?

It's the hottest new stock investment concept that's labelled 'ETF version 2'. How does it work and who's offering it…

Read more »

A girl stands at a wooden fence holding a big, inflated balloon looking at dark clouds looming ominously behind her.
How to invest

Which ASX 200 shares have historically performed well during rising inflation?

Inflation just spiked up again this quarter.

Read more »

a woman in business wear looks at her phone against the window of a high rise space with a city landscape view of tall buildings outside.
Share Market News

Fundie is buying these 2 ASX All Ords shares at discount prices

This fundie says the recent volatility is the perfect time to pounce on high-quality shares.

Read more »

Man cooking and telling to be quiet with his finger on his lips, symbolising a secret sauce.
Technology Shares

Is this the ‘secret sauce’ for ASX 200 tech share price growth?

Technology stocks have, on average, massively underperformed in 2022.

Read more »

A person leans over to whisper a secret to a colleague during a meeting.
How to invest

Is this the secret behind ASX shares that outperform?

Could this be the critical element that brings drive and vision for change to a company to make it successful?

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
How to invest

Why now is a great time to invest in ASX shares (even if you’re fearful of an uncertain world)

Investing for the long term is never a bad idea, even when it seems like it is...

Read more »