Thoughts on Stock Market Corrections

Since the beginning of October the Nasdaq is down 15% from its all-time highs. The S&P 500 is off 10%. Many strong growth stocks are down 30% to 40%. This quick and volatile correction has left investors alarmed and left many to ask, is my portfolio safe? There is a real prospect that the correction could extend further as interest rates rise, trade fears play out and corporate earnings growth starts to slow down. Market valuations are still considered high, and if the FAANG stocks were to lead a correction similar to 2001 we could see the Nasdaq pull-back by about another 40%. The good news is, we aren’t panicking and either should you.

Historically speaking, the U.S. stock market has declined 10% on an average of once a year. It has fallen 20% every four years. It has fallen 30% every 10 years. Trying to time these market ebbs-and-flows has been proven to be a fools errand by even the best investors. Don’t believe me? Pick up a copy of Big Mistakes: The Best Investors and Their Worst Investments. There are many more books that proves this point as well.

Our philosophy is to prepare for these market fluctuations by building portfolios with a reasonable understanding of what overall losses will look like in the event of these corrections. This allows our investors to be the best versions of themselves by not panic-selling when markets drop. Even more importantly, we do this without starving your return potential by keeping the fees very low and investing in very strong assets.

Additionally, many of our clients protect calculated portions of their portfolios with growth-oriented annuities that will remain protected during market corrections. They are safer than bonds with growth potential similar to the stock market. When the market is expensive, we protect gains by shifting assets to these vehicles. When the market is considered cheap, we can shift assets from these vehicles back into the stock market. We discuss this strategy here in Modern Annuity Planning. Our clients have seen great success using this strategy.

One of my favorite investment sayings is, “the best time to sell a stock is never”. I also love, “be fearful when people are greedy and greedy when people are fearful”. The most successful investors buy strong assets and they hold them as long as they can. Doing so removes much of the timing risk that exists in the stock market. So whether this relatively young correction continues, or the market stabilizes going into the New Year, you should be prepared and confident going forward. If you aren’t, call us so we can help you at 480-818-8300.

Happy Holidays