There are some telltale signs that a ‘normal’ market correction might be something worse, but this past week's horrible market activity begs a deeper dive on what investors, especially the scared and panicky ones, should be doing now.

Here are five things investors need to do, as a small correction potentially becomes a bigger correction.

Take a deep breath

The TSX plunged 4% in September and is off to a horrible October, but some perspective is needed here. The TSX is still up 6% on the year and, as far as corrections go, the current one is not that bad (yet).

It seems worse because it has been a long time since we’ve had a correction, but market corrections are completely normal and expected.

Investors are adjusting to the possibility of higher interest rates, but this always occurs in a regular market cycle. It is not 2008 again, readers.

Review your plan

You do have an investment plan, don’t you?

If so, you should review it. You probably have it written down somewhere that you are investing for the long term, and will not react to market events. Listen to yourself.

If you do not have an investment plan, then stop everything and write one. Take the time to think about your risk tolerance, objectives and time frame.

Without a plan, your chance of investment success may be significantly lowered, and the chance of you doing the wrong thing at the wrong time may be significantly increased.

Diversify

It seems foolish to have to mention this, again, but many investors simply fail to diversify.

You may have loaded up on one of two sectors (financials, anyone?) and let your winners run too far, upsetting your portfolio balance.

Overweighting a cyclical sector often results in significant losses when the tide turns. Energy sector investors have learned that very painful lesson recently. 

Make sure you have all TSX sectors in your portfolio, not just the large financials, energy and materials sectors.

Start buying

This is perhaps the hardest thing to do, because you actually need to commit funds against a rising tide of selling. But if you have more money coming in each month than expenses going out, why would you even care if the market is going down?

Some stocks, such as Baytex Energy Corp., Black Diamond Ltd. and Bank of Nova Scotia, have taken big hits recently, but might make big recoveries whenever the market turns.

Avoid reading headlines

With apologies to my editor, bad news is simply more exciting for the media industry than good news. The market crashing 10% in a day is far more newsworthy to an editor than the market rising 10% in one day (don’t scoff: the Nasdaq once rose 14% in a single day once).

If you pay too much attention to headlines and the talking head experts on television, you might want to sell everything and head for the hills.

Keep in mind, though, that every trade has a buyer and those buyers are obviously not as worried. Your best buys come when there is ‘blood in the streets.’

There will always be bad news somewhere, and even the best stocks have hundreds of investors who think they are garbage. Focus on the fundamentals — corporate earnings and interest rates — and not on the current bad news of the day.

We can’t tell you when this correction will end, but history is on our side. Since markets were very recently at all-time highs, we can now unequivocally state that every market correction — ever — has been a good buying opportunity.