Wednesday, February 27, 2019
Markets: A Ticker Tape of Emotions
Remember when learning the latest stock prices meant sitting down and reading a newspaper? Newspapers, printed daily, gave out blocks of information every 24-hours. To learn the most recent stock price, one had to wait for the next newspaper to come out. Few people want to return to reading newspapers to receive their financial information. The majority of us prefer to read prices online, yet newspapers sure beat the anxiety that often accompanies the minute-by-minute volatile stock market fluctuations. Then how do you deal with those fluctuations that often send us into a financial tizzy? Don’t panic with a stock market correction. According to the Motley Fool, a stock market correction is determined as a drop of at least 10% from a recent high price.
Corrections happen a lot
When financial planners build portfolios they base it on science vs. behavioral biases. Planners expect that 25% of calendar quarters will have a negative return. They offset this by controlling the size of the negative returns, selecting a strategic mix of investments that neither have a potential for high returns, nor a risk of low returns. This is commonly known as Diversification.
Corrections usually don’t last
With research conducted on the Dow between 1945 and 2017, John Prestbo at MarketWatch determined the typical correction (averaged to be 13.3%) only lasted 71.6 trading days. To us everyday people, that means 14 calendar weeks.
Resist the urge to sell off and ride the financial wave.
First, most of us do not have the discipline to stay with a winning investment guidebook. But we also tend to make the transaction at the very wrong time, leading to larger losses.
Keep an eye on long-term investments.
If you are a short-term trader, corrections matter. However, most of us are thinking about retirement as a long term goal. That said, keep your eyes on more conservative courses like your 401K (which we hope you are optimizing with employer match contributions). Along with your 401K, consider our retirement plans, look into ROTH, Traditional, Education, & SEP IRA's. Certificates of deposit also hold promise, with maturities ranging from six months to five years.
We don’t have a crystal ball.
It is obvious that we can’t predict the future, but some of us need to be reminded of this fact. Corrections happen at any time, without warning and are caused by a variety of issues. One example is the knowledge that the Great Recession landed when the housing bubble popped and this caused the subprime mortgage crisis. How many fortune tellers in 2006 predicting this?
Don’t think that you are alone when it comes to preparing for your future. Visit McHenry County Investment Services located in MSB's McHenry Office or click here: https://www.mchenrysavings.com/Services/mcis.html to learn about investments, tools and resources offered to help you save up for a better tomorrow. Please call to make your appointment today! (815) 331-6464.