The calls for a stock market correction are beginning to blow through Wall Street. Deutsche Bank cautioned on the chance for a near-term correction in markets. Bank of America also issued a warning. Like clockwork, the S&P 500 endured another mid-month swoon. But, it’s not all bad news with economic data – August retail sales rose by 0.7% against an expected decline of 0.8% reflecting strong consumer spending. However, unemployment claims rose last week slightly above estimates, putting the kibosh on any upside momentum to the stock market. With the S&P 500 returns topping 500% since 2009, many are beginning to call an end to this bull run. But that doesn’t mean you should sell.
Future Wealth’s View
One of the cardinal rules of investing in the stock market is that one should always be expecting a 10% correction. If you’re investing in equities, you should be prepared for that at any time. A 10% correction after a 500%+ bull run is hardly cause for panic. But, one can prepare their portfolio to withstand and mitigate the correction to much lower levels.
Some simple rules that many do-it-yourself investors violate are:
Loading the portfolio with tech or pharma stocks that are doing well and feeling content that their portfolio is diversified: Buying stocks of different companies in the same industry only means they will all go down together.
Randomly buying stocks or ETFs or mutual funds because they are in the news or touted on TV: Absent sound research of fundamentals behind these investments, the ending will not be pretty. Cathie Wood of ARK Investments is constantly on TV pumping her stock picks but her ETF is down 5% for the year against a 20%+ return for the S&P 500.
Not framing investments according to the duration of their need: Chasing hot stocks, with retirement money or when retirement is imminent, is not a wise move. Likewise, getting greedy, when simply investing in an index ETF that provides 20% return, is also imprudent.
In summary, make the required adjustments to your portfolio now and you wouldn’t have to look for an underground bunker later on.