Skip to main content

Putting Market Corrections Into Perspective

After a turbulent 2015, stocks tumbled in the first few weeks of 2016, causing concerns that the bull market U.S. equities have enjoyed since 2009 may be over.

Plagued by worries about global economic growth, the S&P 500 dropped 7.75% in the first two weeks of 2016.1 While the pullback surprised many investors, corrections in the 5-10% range are not unusual.

Since 1928, the S&P 500 has experienced corrections of more than 5% about three or four times each year.2 We see declines of 10% or more every 1-1/2 years, and bear market corrections of 20% or more about every three or four years.3 Obviously, these are all averages and the performance of any single year can deviate significantly from historical norms. 




Though market corrections are rarely welcome, they are a natural part of the overall business cycle, and it is important to take them in stride. The most important thing is not to give in to emotion. While it can be tempting to eject when downside volatility is being experienced, impulsive decisions can be a killer to your portfolio. The only way to ensure you can reliability expect to earn a market rate of return over time is to stay invested in the market throughout time.

Having a sound financial plan in place couple with a diversified portfolio to support the plan is step one. Step two is having the discipline to execute the plan and stay invested over time.
 
Kevin Kroskey, CFP®, MBA

All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Diversification does not guarantee profit nor is it guaranteed to protect assets.

Popular posts from this blog

Don't File Your Taxes Too Soon

I'd like to remind everyone to not be too anxious to file your taxes. Many taxpayers rush to file their tax returns as quickly as possible. Ordinarily, that’s fine. But if you own mutual funds, don’t file your tax return before March 1. In past years, revised 1099s were often issued, reclassifying distributions and/or their amounts. This was a huge headache for the investors who had already filed tax returns based on the original documentation. These hapless consumers found themselves forced to redo their returns and file amended tax returns, adjusting the amount they owed or were due in refunds - and paying their tax preparer additional fees to do the extra work. It looks like 2010 may be the same. Therefore, if you own mutual funds, do not file your tax return before March 1. By then, any amended IRS forms are likely to arrive, potentially helping you avoid the hassle and costs of filing an amended return. Kevin Kroskey, CFP, MBA

Bangladesh Butter Production Predicts U.S. Stock Returns

After reading the title of this post, my hope is that a look of disbelief is cast on your face. Of course butter production in Bangladesh has nothing to do with prediction of US stock market returns. However, through data mining all sorts of 'relationships' can be demonstrated. Many mutual funds, ETFs, and trading strategies are built upon these data mining strategies--most often to the harm of investors that utilize them. As Jason Zweig describes in a recent article in the Wall Street Journal, entitled Data Mining Isn't a Good Bet For Stock-Market Predictions , "The stock market generates such vast quantities of information that, if you plow through enough of it for long enough, you can always find some relationship that appears to generate spectacular returns -- by coincidence alone . This sham is known as data mining." I recall in from my business statistics course in grad school, how I was able to show that ice cream consumption was correlated to the murder ra

Paying for College and Getting Your Money's Worth

According to the Student Loan Marketing Association (more commonly known as Sallie Mae Bank), the average tuition, room and board at a private college comes to $43,921. Public tuition for in-state students at state colleges amounted to $19,548 (about half of which is room and board), with out-of-state students paying an average of $34,031. How are parents and students finding the cash to afford this expense? Sallie Mae breaks it down as follows: 34% from scholarships and grants that don’t have to be paid back, coming from the college itself or the state or federal government, often based on need and academic performance. Parents typically pay 29% of the total bill (an average of $7,000) out of savings or income, and other family members (think: grandparents) are paying another 5%. The students themselves are paying for 12% of the cost, on average. The rest, roughly 20% of the total, is made up of loans.  The federal government’s loan program offers up to $5,500 a year fo