08 Nov Is a stock market correction coming?

Q. The stock market has been terrific since Trump was elected. I’m concerned that we will have a correction at some point soon, but I don’t want to sell now and miss out on more upside. How can I balance these concerns?
— Investor

A. Anyone who has been invested in stocks has enjoyed all these new records for the market.

But how long it will last is a very real concern, as is the question: “Should I get into the market now when it’s so high?”

There will be a market correction at some point, just as there always has been in the past, said Timothy Brunnock, a financial advisor and attorney with Trinity Financial Strategies in Morristown.

But will it happen in three months? Three years?

“We just don’t know, and anyone who suggests they do with any degree of certainty is simply not being honest,” Brunnock said. “Instead, the real key is to recognize that ordinary volatility is simply a part of the overall process of investing in the market for the long term.”

By way of example, Brunnock said, between Aug. 17, 2015 and Aug. 25, 2015, the S&P was down 11 percent. People panicked, he said, and thoughts quickly turned to the market downturn of 2008–2009.

But if we take a step back and look at the bigger picture — and longer time frame — we will see some interesting facts, Brunnock said.

From Jan. 1, 1982 to Dec. 30, 2014, the S&P went from 106 to 2100, not including dividends. Nevertheless, since 1980, the average intra-year decline of the S&P is 14.2 percent — yet the big “panic” of August 2015 was only 11 percent, Brunnock said.

“Short-term unpredictability, both above and below the trend lines, is the driver of premium returns,” he said. “If volatility goes away, then equity returns go away. Temporary declines are the reason for the permanent advances.”

Peter Lynch, in his book “Beating the Street,” said the real way to make money in the markets is to not get scared out of them, Brunnock said. He also noted Lynch famously said “much more money is lost in anticipating corrections in the market that is ever lost in the corrections themselves.”

In other words, markets can never be timed, Brunnock said.

Long-term goals cannot be achieved without being exposed to ordinary volatility, he said.

“The cost of achieving long-term financial goals is going through temporary declines of 10 to 15 percent roughly every 12 to 18 months, and a 30 percent temporary decline every five to six years,” he said. “If you are not prepared for this, you will not have the resolve that is necessary in order to achieve your long-term goals.”

Unfortunately, we don’t know at what point these declines will happen, so we can’t get in or out of the market as if we were getting on or off a train. Missing the best 10 days of market performance in any one year has a significant impact to one’s overall returns, and therefore, one’s long-term goals, he said.

You don’t mention your age, your overall comfort level with risk in the market or a time frame for when you would need the money you presently have invested.

“These are important factors to consider when deciding whether to stay invested or pull out your gains,” he said.

Ask yourself if this is money that you will need within the next six months in order to put a new roof on your house, pay for college tuition, or for another short-term goal. If so, Brunnock recommends selling now when the market is high.

But if the money is earmarked instead for retirement, he suggests staying invested for the long term, “and temporary declines be damned.”

“With that being said, I would strongly suggest consulting with an independent, fee-only, fiduciary firm who can help you answer these questions,” he said. “Everyone has different time frames, needs and risk comfort levels. An in-depth discussion of these factors would determine appropriate strategies to balance your concerns.”

For more on this topic, check out NJMoneyHelp.com’s special report on whether we could be headed for a downturn.

Email your questions to .

The post was originally published in November 2017.