If you’ve had moderate to strong returns on your investments over the past 12-18 months, the stock market’s performance in late August may have shaken you up a bit. So is the stock market pullback a correction or calamity?
We believe that this is a financial correction, not a financial catastrophe. The key to this all is to pay attention to the underlying strength of the U.S. economy. Today’s economic data points to a stable and improving economy, not one that is about to slip into another recession. Some of the indicators that give us this confidence include the fact that job growth is strong, housing data is strong, mortgage delinquencies are stable, and interest rates will remain relatively low for at least the next one to two years.
Here’s something to consider, we can’t expect the market to decline a thousand points in one week and immediately recover or make up a thousand points the next week. So it’s no surprise that we’ve seen a dip or two in stock market since the end of August. On average, it takes about 4 months for 10% to 20% corrections to regain ground and approximately 24 months for 20%+ corrections to make up their lost ground. This is based on historic data over the past 50 years.
If you’re an investor with an intermediate-term outlook, this financial correction shouldn’t have affected you as much if you have a more conservative portfolio. If you’re an investor with a long-term horizon, you don’t need to worry these temporary fluctuations because your portfolio is focused on growth happening 20 years from today and not 20 days from today.
The bottom line here is not to panic. Market corrections are to be expected, and this is the time to keep calm.
If you have concerns about your individual situation, contact an advisor on our team and we’re happy to help.