The tech-heavy Nasdaq Composite stock index has been one of the big winners of the artificial intelligence (AI) boom. The benchmark roared higher over the past two years, posting consecutive double-digit gains, as investors piled into players present in this hot growth area. So, many investors have gotten used to seeing positive performance from the benchmark and many of its members — until recently.
No, the AI story hasn’t changed. But many investors are worried about the general economy and that turbulence could limit the growth of industries and companies. What sparked concerns? President Donald Trump recently launched tariffs on imports from China, Canada, and Mexico — a move to protest the flow of lethal drugs and illegal immigrants across borders and into the U.S., the Trump administration says. But economists have mentioned the risk of higher prices, something that could weigh on people’s buying power and corporate profits. And, in recent days, this has even sparked concern about the potential for a recession.
All of this hit the Nasdaq hard, pushing it into correction territory last week when it fell more than 10% from its most recent high on Dec. 16. The benchmark went on to fall 4% in the March 10 trading session for its worst performance since September 2022. All of this clearly could put any investor on edge, but it’s important to remain calm in times of market turmoil and take actions that could limit impact on your portfolio and set you up for a win over time. Here are three crucial things you should do during this Nasdaq correction.
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1. Don’t sell in a panic
You may see that one of your stocks has fallen 10% in one day, for example, and your next move might be to calculate how much money you’ve lost. But here’s something very important to remember: You haven’t lost a dime if you didn’t sell. What you are seeing now are losses on paper, but they could turn into gains if you stick with the particular stock and hold on for a number of months or years.
Even though it’s tempting to “get out” before the stock declines even more, it’s important to resist and reduce your focus on the short term. Yes, it’s important to follow what’s going on today, but instead of looking at the immediate impact, it’s a better idea to consider whether today’s troubles represent a big risk for your companies over time. (I’ll talk more about this in my next point.)
Back to the idea of not selling. Does this mean you should never sell during a correction? Not necessarily. If you’ve lost hope on a particular player, wouldn’t take a huge loss by selling, and are eager to reallocate the money to other stocks — it could be worth doing. But this should be done on a case-by-case basis. And most times, it is better to sit tight and wait for the stock to recover down the road, because quality stocks generally will rebound and go on to gain.
2. Think long term
Consider today’s headwinds and think about the best- and worst-case scenarios and what these could mean for the companies in your portfolio five or 10 years from now. Even if a recession hit the economy today, a strong company that sells products with staying power probably would do just fine over the long run. A great example is Coca-Cola (KO 0.04%), the world’s biggest maker of nonalcoholic beverages — including its eponymous drink.
As you can see in the chart below, with the vertical bars representing past recession periods, Coca-Cola declined in the short term but always went on to recover and increase. So, investors who held on, won. And that could very well happen again.
As difficult as it is to see your holdings drop, it’s critical to look at the companies’ financial situations and future prospects. If these look positive, tell yourself that these near-term headwinds may be unsettling now but won’t change the overall growth story. Remember that owning stock means owning a part of a company.
A look at the Nasdaq’s performance over the years also may ease your mind. Even after the worst of times, the index has recovered and advanced in the years to follow. Check out this view of the Nasdaq, with vertical bars highlighting recession periods.
Of course, all of this talk about recessions doesn’t mean that one is on the way. Though a recession will happen someday. But it’s important to see that, even in those cases, long-term investors have gone on to score a victory.
3. Forget about timing the market
If you’re in the financial position to do so — your bills are paid, you have an emergency fund, and won’t need the money in the short or medium term — now is actually a great time to buy stocks. Many fantastic players are on sale, meaning you can pick them up for bargain prices and later potentially benefit as they recover. As I said, quality companies won’t stay in the doldrums forever.
But, one important thing to avoid in a correction or at any time is trying to “time the market.” It’s impossible to buy a stock at it’s very lowest and sell at the very highest unless by sheer luck. If you set that as a goal, you’ll be disappointed. Instead, aim to pick up a stock at a bargain or even reasonable level and hold on for the long term. If it falls further in the coming days or weeks and you could have bought it for a cheaper price, that’s OK. Over a period of five or 10 years, that difference won’t matter very much.
You’re likely to be happy with the resulting payoff if you select quality stocks and hold on for the long term, making today’s market troubles seem like just a bump along the road to financial freedom.
