Market Correction

As you may have noticed from the shrieking coming from the financial media, the US stock market has entered what’s generally called “correction territory” – that is, it has closed 10% below its latest record high point.  You will see plenty of commentary analyzing why this is happening (tariffs, uncertainty coming out of Washington DC, recession fears, etc.) and how bad it might get (a necessary but temporary blip all the way to the end of economic life as we’ve known it).  My goal today is to give you historical context and perspective from someone whose cares about you and whose incentives are aligned with yours.

Corrections are, as you likely remember, almost as common as the cross-town bus.  Over the last ~45 years, the worst top-to-bottom drop per year in the stock market has averaged 14%, even in years that end up being very good.  In other words, a 14% downturn at some point in the stock market just gets us to average.  This downturn may ultimately hit that mark.  Or it may be more.  Or less.  At this point, no one truly knows.

The talking heads in the media always appear very confident in their predictions but that confidence always mask the underlying truth – there are no facts about the future, only opinions.  They are literally trying to predict the future, the primary characteristic of which is its unknowability.

More importantly to long-term, goal-focused investors like us is the fact that the direction and magnitude of the stock market over the next 2 weeks, or 2 months, or 2 years simply does not matter.  I always tell you that we’re better off being prepared for the next downturn (whatever or whoever may cause it) than trying to predict it in order whipsaw your investment strategy back and forth to try to get in when it’s good and out when it’s bad.  History and markets have been extremely unkind to that market-timing approach.

For those of us still in the accumulation phase of our investing careers, this downturn (and all other downturns) are a gift because they enable us to buy lots more shares at discounted prices.  The media’s “correction” is the saver’s “sale.”  For any of you sitting on a little excess cash at the moment, putting some of that to work at the 10% discount we’re currently seeing is something I believe you’ll be grateful you did a few years down the road.

Similarly, for those of you in retirement, drawing from your investments today, remember that this is exactly why we insist on having at least the next 5 years’ worth of your withdrawals in conservative, stable bonds and cash.  If this downturn continues to get worse from here we will draw progressively more and more from those reserves to fund your living expenses so the stock part of your portfolio can have the time it needs to recover.

The investment strategy we’re pursuing in your accounts came directly out of your financial plan.  Your financial plan is derived directly from your most important lifetime financial goals.  The progression is goals — plan — portfolio.  You don’t see “current events” anywhere in that progression for a very good reason.

In my experience, all successful long-term investors continuously act on a long-term plan.  All the failed investors I’ve ever encountered up close were continually reacting to current events – and always the wrong way.

I encourage you to remain with me on the right side of that great fact.  As always, I’m here if you would like to connect to discuss this in more detail.