The US stock market is in a funk.
Through today’s close the:
- S&P 500 is -6.5% below it’s all-time high on 1/4/22
- Dow Jones Industrial Average is –5.7% below it’s all-time high on 1/5/22
- Nasdaq Composite is -11.9% below it’s all-time high on 11/22/21
- Russell 2000 (small cap stocks) is -17.1% below it’s all-time high on 11/22/21
So, yes, many stocks are in a correction (technically defined as a 10% decline from an all-time high) that is being led by growth, technology, and small cap stocks.
This is your friendly reminder that corrections are a normal part of investing. In fact, going back to 1980 the S&P 500 has had an average intra-year decline of -14% a year.
Despite having an average intra-year drop of 14% every year, the ending calendar year annual return for the S&P 500 was positive in 32 of the last 42 years, or approximately 75% of the time.
Accumulators Should Welcome Corrections
If you are still actively saving and building wealth by investing in the stock market, then you should welcome these opportunities. In fact, some of the hottest stocks from 2020 are down 50%+ from their highs. If investors liked these stocks in 2020, then they should love buying more shares today at half price!
Stick to your investment plan which should include a systematic way of investing on a regular basis (dollar cost averaging).
Retirees Should Be Prepared For Downturns
Retirees should be prepared for pullbacks, corrections, and even bear markets by building a diversified portfolio that’s in-line with their acceptable level of risk. They should have portfolios that are large enough to cushion downturns. They should have a Bear Market Fund™️ that serves as a source of withdrawals for living expenses during a downturn.
What is a Bear Market Fund™️? It’s a term we coined for the portion of a retiree’s portfolio that’s invested conservatively enough to live on for two to four years so they don’t have to liquidate investments that are down in price when funding living expenses.
This Too Shall Pass
In 2021, we saw low volatility in the market, and we never had more than a 5% drop from a high. Now we are currently experiencing the 27th correction greater than 5% since March 2009. This is your reminder that there’s no need to panic. Yes, the market is likely to get worse before it get’s better. But, never forget that the market has survived every single one of those 27 5%+ corrections since 2009 and at some point went on to achieve a new high.