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5 Ways to Protect Your Portfolio in a Stock Market Correction

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When the stock market slides between 10% and 20%, it’s called a correction. You may not recall the last one because it ended in February 2016, shaving 14% off Standard & Poor’s 500-stock index. Corrections occur an average of every 26 months in a bull market, but waiting times have sometimes been far longer — or shorter.

Some strategists say stocks look pricey, setting the stage for a potential fall. The S&P 500 trades at about 24 times corporate earnings for the past 12 months. That is more expensive than the market has been 90% of the time since 1928, says Jim Stack, president of InvesTech Research and Stack Financial Management. “This is one of the more overvalued markets in history,” he says. “It carries a high degree of risk.”

That doesn’t mean stocks can’t keep climbing. Corrections within a bull market are often temporary reversals that end after a few months. (If a correction extends beyond a 20% drop, it turns into a bear market). Many strategists say the current bull market is supported by a healthy economy, modest inflation and interest rates that remain near historic lows.

Still, if you’re nervous about a correction, here are five moves you can make now, potentially saving you a bundle if the market starts to skid.

All prices and other data are as of September 5, 2017.

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