What To Do with Your Retirement In A Market Correction
I have been getting a lot of requests to put up a blog post to prepare everyday retirees for an upcoming market correction. First of all let’s describe or identify a market correction. A market correction is essentially an overall market drop of about 10%. A market correction is not to be confused with a bear market, which is about a 20% drop in the markets. First, let’s discuss when the last official market correction was on the books. The last correction was the summer of 2015, and it started with China’s market in June. China had a stock market crash that continued into July and August, then around the middle or August the Dow Jones Index (a collection of key stocks that measure the market as a whole) The Dow Jones Stock Index basically measure the pillars or historical fortune 500 giants of the United States fell about 10%. The Dow Jones fell 588 points during a two-day period, 1,300 points from August 18–21. Then on Monday, August 24, the world stock markets were down substantially, wiping out all gains made in 2015.
I think while I have the opportunity I would like to tell you the difference in a bull market and a bear market. A bull market is when the stock market is rising and a bear market is when the market is dropping. Okay to help you remember, if a bull was charging you he would charge UP. Nevertheless, if a bear was chasing you he would be chasing you DOWN the hill. I know sounds strange, but when you have to pass a finance exam sometimes you have to come of with the strangest memory tools. That was close I almost became more technical than I wanted to in that last explanation.
Okay now what to do in your retirement account as we you see a couple of things on the horizon. Let’s talk about why we may be due for at least a market correction. The upcoming election may aid in what we call “Political Risk”, this is basically when there will be some adjustments good or bad, but due to an election expect a shift in the markets. Also we are in an interest rising environment. There has been two interest rate hikes this year, which is good and bad. Good because this signals a strong economy and an unemployment rate of about 3.8%. Bad because the rate hikes affect things like home equity lines of credit, credit cards, etc. The federal chairman’s job is to push the gas pedal if the economy moves to slow and let up off of the gas if it starts to move to fast. Using this analogy the federal chairman is letting up on the gas. This slows borrowing (because rates are to high) and reduces the money that consumers may have at their disposal. Too many dollars chasing goods causes inflation. Meaning if the grocery store now says a loaf of bread is $5.00 dollars, then you have no problem paying it because you essentially have it at your disposal to pay that price.
What you should do in your retirement account really depends on where you are at in your retirement window. If you are a year out then you should start locking in some of your gains, because you have seen a pretty good run up as you prepare for retirement. If you have more then two to five years left than history says riding it out and staying the course may be your best option at this time. The last correction as I mentioned earlier happened in 2015 nearly 3 years ago. Since that time if you would have invested a $10,000 investment in the following stocks you would be in very good shape now. If you had invested in Apple you would have $14,341; in Google you would have $19,447; in Amazon you would have $34,839; in McDonalds you would have $17,557; in Facebook you would have $17,768 or Bank of America you would have $18,838.
Now my disclaimer as a former stock broker and current advisor PAST PERFORMANCE of the AFOREMENTIONED STOCKS IS NO GUARANTEE OF FUTURE PERFORMANCE. YOU COULD HAVE LOST ALL $10,000!
I only suggest staying put because saving for retirement is 100% different then day trading. Retirement investing is and will always be long term investing and your chances of making money means you have to be in the market. I have included Apple’s chart since the last correction just to give you a supporting visual. If you liked what I shared and how I shared it, then I do have a Do It Yourself 401k (DIY) planning course coming up in the next few weeks. If you would like to have access to my Teaching Site Pre launch and receive 50% off the entire course before I go live then click here to sign up. If you are interested in the My Retirement Podcast series then click here to listen. The Retirement Exit podcast show is also now syndicating on iTunes, iHeart Radio, Google Music, Spotify, and TuneIn Radio.