Amidst the recent market volatility, many investors are wondering whether we are experiencing a correction or a crash. These two terms are often used interchangeably, but they actually have very different meanings and implications for investors. **What is a Stock Market Correction?** A stock market correction is a decline of 10% or more from a recent high. Corrections are relatively common, occurring about three times per year on average. They are typically caused by a temporary event, such as a geopolitical crisis or a disappointing earnings report. **What is a Stock Market Crash?** A stock market crash is a decline of 20% or more from a recent high. Crashes are much less common than corrections, occurring only about once every five years on average. They are typically caused by a major event, such as a recession or a financial crisis. **Key Differences Between Corrections and Crashes** The table below summarizes the key differences between corrections and crashes: | Feature | Correction | Crash | |—|—|—| | Decline | 10% or more | 20% or more | | Frequency | About three times per year | About once every five years | | Causes | Temporary event | Major event | | Impact on investors | Moderate | Severe | **How to Invest During a Correction or Crash** Whether you are experiencing a correction or a crash, it is important to stay calm and avoid making impulsive decisions. Here are a few tips for investing during a market downturn: * **Rebalance Your Portfolio:** If your portfolio has become too heavily weighted towards stocks, you may want to consider rebalancing it to include more bonds or other less risky assets. * **Dollar-Cost Average:** If you are investing new money, you can dollar-cost average by investing a fixed amount of money at regular intervals. This will help you to reduce your overall risk. * **Focus on Long-Term Goals:** It is important to remember that market downturns are temporary. If you focus on your long-term goals, you can ride out the storm and come out ahead in the end. **Conclusion** Understanding the difference between a correction and a crash can help you to make better investment decisions during market downturns. By staying calm and following the tips above, you can protect your portfolio and achieve your long-term financial goals..
Stock Market Correction vs. Crash: Key Differences Explained
