Market correction: 5 things you should do to shield your investment

Highlights

• The start of 2022 has seen a mini-crash in many of the key markets, including the FTSE100 index.
• Long-term investors should not get worried about the short-term crashes in the market; instead, they should be careful and avoid certain mistakes.

In 2021, the global stock market gave good returns to investors and witnessed one of the best years. Major indices recovered from the pandemic impact to trade at all-time highs. However, the start of 2022 witnessed a mini-crash and some of the key indices, including the FTSE100 index declined to their multi-month lows on fear of rate hikes and geopolitical tensions.

Long-term investors should not get worried about the short-term crashes in the market; instead, they should be more careful and avoid certain mistakes during these crashes to protect their portfolio. Let us look at five things to avoid during the market crash to protect your investment:

Avoid Panic selling

The volatile movement in the stock market majorly creates a panic wave amongst investors. The fear of stock price drop and losing money pushes investors into panic selling, turning notional losses into permanent. Individuals should have a long-term prospect and focus on the business rather than the stock price.

At the start of the Covid-19 pandemic in March 2020, stock markets declined drastically, and those who sold their investment during the downturn lost to the gains that the markets witnessed during the next two years.

Portfolio diversification to reduce volatility

Investors should do proper asset allocations and diversify the portfolio to minimise overall portfolio volatility. Instead of the stock-only portfolio, investors should allocate some funds towards bonds as well because the stock and bond market has a negative correlation, and bonds serve the purpose of reducing the portfolio volatility.

Avoid taking any bad investment decision

Investors tend to bias their investment decision based on short-term market movement. A single-year gain of 30% to 40% will be followed by some correction. Hence, investors should realise these market sentiments and avoid taking risky market bets based solely on past performance as past returns are not predictors of future performance.

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Don’t invest using borrowed funds

In expectation of high returns from the stock market, individuals tend to do leverage trading or trade with borrowed funds which is highly risky during market corrections. The downtrend in the market leads to heavy losses in leverage positions and puts an additional burden on individuals. Investors should avoid taking speculative bets and should not invest money which he can’t afford to lose.

Avoid daily portfolio check

Investors with long-term investment prospects should avoid checking portfolios on a daily basis as any short-term fall in the market can lead to biased decision-making. Individuals should avoid market noise and instead check their investment weekly or monthly basis to make more rational decisions.

Here we are discussing 2 FTSE-listed stocks that are long-term investment options and can be held amid any short-term corrections.

Lloyds Banking Group Plc (LON: LLOY)

The banking service provider has operations in the UK and other European countries. The current scenario of rising interest rates in the UK to curb inflationary pressure could benefit the company. A hike in bank rate will improve net interest income and margins for the lender. Moreover, the bank pays steady dividends to its shareholders. Its current dividend yield stands at 6.6% as of 04 February 2022.

Shell Plc (LON: SHEL)

The integrated oil & gas company has operations in several countries. Rising crude oil & natural gas prices in the international market are expected to continue in 2022, which will help the company realise higher margins and profits for its shareholders. Also, the company regularly pays dividends to its shareholders. Its current dividend yield stands at 3.8% as of 04 February 2022.