Feb 9, 2018 4 min read

After a stellar January, the stock market has hit a brick wall in February. People have been spoiled by an almost nine-year run in the market. There was almost no volatility in 2017, when about 60 new highs were hit.

In fact, it had been 310 trading days since the S&P 500 had back-to-back 0.50 declines. That is double the prior longest streak!

Corrections are normal in the market. It has been said that investment in equities is like walking up steps while playing with a yoyo. There will be downs, and sometimes they will last longer than hoped. But the general direction, over time, will be up.

Roger G. Ibbotson, Ph.D., recently published a white paper in which his team analyzed different investments over a 90-year period. They looked at growth from 1927 until 2016. If you would have invested $1 in 1927 in large cap stocks, they would be worth $5,407. If, during the same time frame, you had invested $1 in long-term government bonds, your value would be $125.

That is quite a difference. Stocks grow more over the long term, but they have more risk.

If you are young and have a long time frame, do not worry about corrections in the market. Keep investing, and remember your market money must always be in the market and your non-market money should never be in the market. When markets are down, it is almost like a sale.

If you keep investing the same amount regularly, you will own more shares. This is dollar cost averaging. Make sure that your investments match your risk tolerance.

A large part of risk tolerance has to be adjusted for age and when you need the money. When you retire or are close to doing so, you do not have as much time to make up for losses. When you are no longer earning an income, you may need to pull money out of your investments for living expenses.

This can lead to sequential risk if the stock market suffers big losses early in your retirement. This could lead to you running out of money. Remember, the lost decade was only 17 years ago. Someone who invested $100,000 in the S&P 500 took 12 years to just break even. If you were taking withdrawals, you could not have been able to make up for the losses.

Brexit happened in June 2016, when Great Britain voted to leave the European Union. Stocks went down 900 points in three days. The Observer-Reporter called and asked if I thought this was the beginning of a correction, and I said no. Raising interest rates would begin a correction. Brexit recovered in the next three days.

No one can time the stock market. The Brexit loss was fear that would not be realized for several years.

The Federal Reserve has kept interest rates low for about nine years to stimulate the economy. Many companies used low-cost money to buy back shares of their own stock. And many investors believed they had to take on more risk just to beat inflation, which meant they bought stocks instead of safer investments. As rates rise, these two activities will decrease.

When the recent, sudden downturn started, the Fed had a new chairman. This created uncertainty, which markets do not like. There was talk of raising interest rates three times this year. Inflation has started to pick up. This gives the Fed more reasons to raise rates.

Last Friday, the 10-year federal bond hit 2.85 percent. The market lost 666 points that day and you know what happened on Monday.

Interest rates will go up, which will most likely affect the stock market. The market will go up sometime. It may move around for a while or it may go down more. No one knows for sure.

Any money you need for the next few years probably should not be in the market. If you have to start withdrawing for retirement, make sure you are carefully allocated. Do not get greedy.

Once J.P. Morgan was asked how he made so much money, he said, “I sold too soon.”

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

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