I know what you’re thinking. This is someone just trying to grab a headline. Sure I wanted your attention, but I also mean what I say. A declining market presents some great opportunities for everyone. Granted, this may apply to some more than others. Let’s take a closer look.

We can lump every investor into one of three broad categories: Accumulator, Crossover, or Spender.  Let me shed some light on this. An Accumulator is someone who is building their wealth, likely between the ages of 22 to late 50s/early 60s. To some extent, retirement is still off in the distance. A Crossover is that person coming up on retirement. It is close enough they are making plans, either personally or professionally to smoothly transition into this phase of life. The Spender is the retiree; the person living on retirement income sources to support their lifestyle.

Let’s work backwards in examining why a market correction (moderate or severe) can benefit each group. For the Spender, a market correction represents a severe emotional challenge. You rely on your portfolio to support your lifestyle, and before your very eyes, you watch your portfolio drop in value over a short period of time, usually 12-36 months. If the appropriate level of planning is being done, the short to intermediate term lifestyle needs should be readily available in more stable asset classes, such as cash and short-term bonds. This short article in the Perspectives section of our website might be very helpful in understanding this. If you have some excess reserves, using some of those to buy some beaten down equity positions could possibly yield some attractive long-term returns. Patience in the recognition of that will likely be rewarded.

A Crossover is likely someone within 1-5 years of retirement. Frankly, having a market correction shortly before you retire is the best thing possible. Why? Simple, it’s better than having it immediately after you retire. First, you get the privilege of continuing to buy shares of equities at lower prices as they drop. Second, it increases the likelihood that when you start withdrawals during retirement, it will be during a more stable market environment. Sit back, and enjoy the ride! Some folks are concerned because they plan to retire based on certain portfolio values that may be dropping as we speak. A proper reserve of cash and more stable bonds are what will finance your early retirement withdrawals. As the market slides, now might be the time to consider using some of those resources to pay for the back end of your retirement, 20-30 years from now by purchasing some broad-based stock funds.

That brings us to Accumulators. This group is wide-ranging in age. It could be a 22 year old saving their first dollars into a retirement plan, or it could be someone with a much shorter runway until retirement, such as a 55-60 year old. For those on the latter end, this is good news as it gives you a chance to accumulate more shares of lower priced stocks. Short on excess cash? No problem, a simple rebalance of your portfolio will likely shift dollars from less volatile investments like bonds, into more long-term stock investments. For those in the 22-45 year old range, the news is even better. Though this market correction offers great opportunity for you, the best part is that there will likely be several more of these before you retire. Does that mean you can sit this out and wait for the next one to participate in the buying opportunity? No! A key tenet of a successful long-term investing campaign is not trying to time your way in and out of the market. Let your money work for you. Your focus is on saving more.

Legendary investor Warren Buffett has a nice way of summarizing the psychology of the stock market: “The stock market is a device for transferring wealth from the impatient to the patient.” The recent volatility will certainly test your ability to stay focused on your long-term goals, but with the proper planning and perspective, all three groups above should view this as a chance to grow their wealth potential.