Falling markets are just what you needed. Here’s why

livemint.com:

Investing in stocks is often described as simple but not easy. Yet, for much of the past twelve months, making money in the market seemed to be just that—simple and easy. It felt almost effortless. Any approach, from thoughtful strategies to pure intuition, seemed to yield handsome returns. The more you invested, the more you made. The less you understood the risks involved, even if it was part of your family’s future, the richer you got.

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But that era may have passed. No one knows for sure; perhaps an even greater opportunity lies ahead. Yet, the recent stock market sell-off has forced investors to take a pause—and that’s a good thing. Here’s why.

First, true performance is measured not by how your portfolio fares in a steadily rising market, but by how it holds up when things go south. If your portfolio has fallen less than the market in this downturn, give yourself a pat on the back—you’re clearly on the right track. If, however, your portfolio has taken a steeper dive, it’s a sign that something is amiss. This market drop offers a valuable reflection on where you stand as an investor, and it’s a lesson that was perhaps overdue.

Second, if your portfolio has indeed underperformed the market, it could be an indicator of excessive risk-taking. You may have been reaching for returns without enough regard for potential losses. Now that the downside has arrived, you’re paying the price. Hopefully, you aren’t over-leveraged, and this experience won’t prove too costly. Either way, this correction is a chance to better understand your risk tolerance and adjust your portfolio to align with your comfort level. The era of mindlessly chasing returns should likely end