The market correction we’ve all been waiting for could strike in as little as a few weeks. Undoubtedly, the stage looks set for that much-anticipated 10% peak-to-trough decline. The Nasdaq 100 is already in a correction and could fall into a bear market (a 20% drop) within the next quarter. Undoubtedly, the theme of value shining over growth continues to be the dominant one thus far in 2022. Just how long will it last? And could value soon sag as high-multiple growth experiences its next leg lower? Indeed, much liquidity pumped into the markets could exit, and wonderful, cheap businesses could end up being akin to the babies thrown out with the bathwater.
As a TFSA value investor, it’s your job to find such names and be buyers of them in a way to maximize your margin of safety. Valuation always matters. Market beginner investors are learning this, and, for many, this will be their first market correction. For many momentum chasers and growth-savvy investors, their portfolios have probably already more than corrected. With an innovation-led strategy, one may be stuck in a bear market, with a tough decision to make.
When does one draw the line and start doing some selling amid an impending market correction? Nobody knows. But with so much damage already done to the frothiest areas of the market, I think that the time to sell was months ago for investors big on the Cathie Wood types of speculative growth stocks. While I wouldn’t double down, I would look to bring your portfolio back into balance with value names that shouldn’t be dragged lower amid this brutal market correction.
Market correction: Don’t let it derail your TFSA’s goals!
Sadly, for many beginners, this market correction is a painful one because of the concentration of selling in tech and growth names. Such names are what likely led many towards the world of investing. While it’s a painful time, investors should treat such volatility as an opportunity to learn and grow as investors. Chasing momentum, ignoring the valuation process, and looking to get rich quickly are part of a strategy that seldom ends well. While traders can make huge sums, most beginners tend to lose money, and it’s a real shame.
Here at the Motley Fool, we’re all about sound, long-term investing. Valuation is critical, and it doesn’t just apply to traditional names. Growth stocks can be value stocks if you pay less than intrinsic value for a name. If you’re still reading this piece, you’re on the right track, and these tough times, I believe, will be less remarkable in several months or quarters from now. However, odds are, the market correction will be less memorable in 10, 20, or even 30 years down the road.
Steer clear of the unknown, and don’t let their siren songs of big gains overnight draw you in.
Keeping it simple amid a market correction
Consider keeping things simple with a solid ETF such as BMO Low Volatility Canadian Equity ETF (TSX: ZLB). It’s a diversified basket of lower-beta names and is a better representation of the many sectors in the Canadian stock market versus the TSX Index. The TSX is too overweight in energy and financials to be considered a tremendous one-stop-shop investment. However, it does have a place in some portfolios that seek exposure to those two sectors.
Why do I like ZLB for newbie investors looking to diversify?
The ZLB tends to be less influenced by the broader market forces. That means even if the Nasdaq 100 sinks 20%, the ZLB is more likely to hold its own. And investors can expect to be paid a growing distribution in the process. Don’t let your TFSA’s long-term plan be derailed by a few soured growth investments in a rising rate environment. Instead, diversify your way out of trouble and remember the lessons that a market correction can teach you. They will help you in your long-term journey to financial freedom.
Stay Foolish, my friends.
