05 Dec Are we heading for a crash or a giant correction?

Q. I’m 45 and in the stock market for the long term. I know I should not time the market but I’m convinced we are heading for a crash or a giant correction. How can I best position myself – should it be cash – or like my wife says, should I just stay in indexes and cross my fingers?
— Investor

A. We’re glad you know you shouldn’t try to time the market.

And you’re right — there’s been a lot of speculation about where this market cycle is.

While there is no crystal ball that can tell us the future, markets tend to move in cycles where there will be times when the market goes up and times when the market goes down, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

“At 45, you’ve been through some of those downturns such as 9/11, the `dot-com’ bust, the 2008 financial crisis and even the COVID spring of 2020,” she said. “While past performance is no guarantee of future performance, the markets recovered after each of these events.”

Leaving the market, even for a short period of time, can potentially hurt your performance, Kane said.

Let’s look at the S&P 500 index from 1990 through 2024

If you invested $1,000 in 1990 and stayed invested the entire time, you’d have $34,032 in 2024, Kane said. If you missed the best day, it would be worth $30,499. If you missed the best 25 single days, it would be worth $7,225.

Investing $1,000 in one month T-Bills would result in $2,520 in 2024, she said.

So should you sell out of your investments and go all cash?

“My mother had a quote that she used a lot with me as a child: ‘Just because you can, doesn’t mean you should,’” she said.

You need to ask yourself: If you get out of the market today, when would you get back in?

“If you time it wrong, you may miss out on gains,” she said. “While diversification does not guarantee against loss, I believe you should invest in a diversified portfolio.”

Don’t put all your eggs in one basket. Different sectors will do well in different market conditions, she said, and stay invested in different market cycles.

Kane said the first step is understanding your current portfolio and if it is appropriate for you.

There are two key factors to consider when you think about your investments and your overall portfolio allocation: your risk tolerance and when you need the money.

Let’s start with risk tolerance. Kane said you can think of this as choosing how you’ll travel on a trip.

A higher risk tolerance is like a sports car. You can drive fast but you will feel any bump or pothole in the road more than other modes of transportation.

A moderate risk tolerance is like a family sedan. It offers a combination of speed and stability. You’ll not get there fastest but it can handle some bumps in the road without too much worry.

A lower risk tolerance is a like a train. It’s a slower, steadier, more predictable route with fewer surprises.

“Each of these modes of transportation offers a different experience and potential challenges along the way vary based on your comfort with risk,” she said.

In financial terms, a higher risk portfolio will have a higher allocation towards stocks and fewer towards bonds and cash. Stocks tend to be more volatile than bonds whereas bonds tend to provide more stability in a portfolio, Kane said.

A moderate portfolio will have a balance of stocks, bonds and cash, while a lower risk tolerance portfolio will have lower allocation of stocks and higher allocation of bonds and cash, Kane said.

“Review your portfolio on a regular basis to ensure that your investment allocation makes sense for where you are in life. It can change over time,” she said.

Your risk tolerance at 60 is likely more conservative than where you are today at 45 and what it was when you were 30. That’s because at 30, you have 30-plus years until retirement and can weather the ups and downs of the market.

“At 60, you’re closer to when you’ll need your money. You don’t have a lot of time to recover from a large downturn,” Kane said. “The closer to when you need your money, the more you should protect that money and look towards having more conservative investments in your portfolio.”

Kane said you could take a bucket approach to your portfolio which can help you manage your investments based on when you need money:

One bucket is your emergency fund, which should be cash and cover three to six months of expenses. This way you won’t have to sell investments to fix a car or furnace, she said.

Your near-term bucket is next. This money should be invested conservatively and would be funds that you would need to access in the near term, she said.

Next, a moderate term bucket. This is money that you would want to grow but won’t need it for several years.

And finally, your long-term bucket is money that you won’t need for a very long time so it can be a bit more growth oriented.

“The buckets should come together to match your overall portfolio allocation and risk tolerance,” Kane said.

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This story was originally published in December 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.