facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Is There a Correction Coming? Thumbnail

Is There a Correction Coming?

Mike Earl, CFP®, CPWA®


There is always a market correction coming. We don’t know if it will happen next week, next month, or next year.

We also don’t know how deep the correction (or corrections) will be in a given year. Dating back to 1980, the average intra-year drop has been 13.8% (via JP Morgan).

Some years, the decline has been much more (e.g. a 34% decline earlier this year from COVID worries).

Some years, the decline has been much less (e.g. President Trump’s first year in office, a maximum drawdown of just 3% in 2017).

Concern about a coming correction is not a good enough reason not to invest, because that concern will never go away. Essentially, you could use it as a reason to never add additional dollars to the stock market.

This is part of the beauty of 401k accounts (same goes for 403b, 457, TSP, SEP IRA, etc.). You invest every time you are paid via an automatic payroll deduction. Before each payday, you don’t ask yourself whether it’s a good time to invest. You just keep plowing money into stocks and bonds systematically, regardless of market highs or market lows.

Let’s turn back to the state of the US stock market today. Since we are back at all-time highs, is now inherently a sub-optimal time to invest? I’ll answer that question with another question:

  • Were the 1950s or the 1980s bad times to invest? The US stock market was consistently setting new all-time highs during those decades, and then turned around and set a whole bunch more all-time highs in the years/decades to follow.

As Ryan Detrick of LPL has pointed out, new all-time highs tend to occur in clusters that can last a decade or longer. Our current bull market began making new all-time highs back in 2013. This does not guarantee the bull market will last a few more years, but it’s very possible that will be the case—especially with no real compelling alternative to investing in stocks (due to bonds and cash yielding very little interest).

What does this mean to you, our client?

We help our clients invest for the long-term. We aim to help our clients avoid short-term market timing decisions. We want you to stay the course, to carry on with life, and be prosperous over a lifetime of successful, long-term investing.

Sources:

  1. JP Morgan Guide to the Markets, September 30, 2020 (https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/).
  2. https://lplresearch.com/2020/12/16/chart-of-the-year/

Disclosures:
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the team members providing such comments, and should not be regarded as a description of advisory services provided by The Wealth Group or performance returns of any client of The Wealth Group.

The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

Individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past Performance does not guarantee future results.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.