S&P 500 Nears Correction: What It Means for Investors Now
What should investors do with the market down nearly 10% from its highs?
With the S&P 500 approaching correction territory—down nearly 10% from recent highs—investors are once again facing market volatility. The natural reaction might be to sell or make drastic portfolio changes, but history suggests that for most long-term investors, the best move is sticking to the plan.
Market corrections are a routine part of investing. On average, the S&P 500 experiences a 10% correction every one to two years, yet it has always recovered and moved higher over time. Investors who try to time the market often end up missing the sharp rebounds that follow declines.
For those holding diversified broad-market ETFs like the Vanguard S&P 500 ETF (VOO) or SPDR S&P 500 ETF Trust (SPY), the best strategy is often to do nothing—or even take advantage of the dip by dollar-cost averaging into the market. Trying to time every downturn is difficult, and selling at the wrong time can lock in losses and cause investors to miss the eventual recovery.
Defensive & Hedging Strategies
That said, not every investor is content to set it and forget it. More tactical investors looking for ways to adjust their positioning have options.
Defensive ETFs like the iShares MSCI USA Min Vol Factor ETF (USMV) or Vanguard Dividend Appreciation ETF (VIG) provide relative stability. The same could be said of ETFs tied to economically resilient sectors, like the Utilities Select Sector SPDR Fund (XLU) and the Health Care Select Sector SPDR Fund (XLV).
For those expecting further downside, inverse ETFs such as the ProShares Short S&P 500 (SH) or the ProShares UltraShort S&P 500 (SDS) can hedge against losses—but these are short-term tools and not suited for long-term holdings due to compounding effects.
The Bottom Line
For long-term investors, market corrections are just part of the journey. Staying invested and avoiding panic-driven decisions is often the best approach. But for more tactical traders, defensive moves and hedges could provide opportunities in a choppy market.
