Current Market Perspective - Part II: What Should You Do?
Our current assessment of the market is that we are in a market correction (for our reasons why, see our prior posting). We are close to the low point of a typical market correction, which entails a rapid decline of around 10%, followed by a slower recovery that can take from 2 months to a year (it can often be a fairly rapid recovery). While we don’t believe we or anyone else can predict the precise beginnings and ends of market corrections on a consistent basis, what is important to a long-term investor is to recognize that it is a correction. Because all signs point us to believe we are in a market correction, our advice at the current time is to stay the course - we don’t believe a change to the recommendations we provided in July is required at this time. We recommend that our customers ride this correction out.
That said, we’ve had quite a few of our customers call or email us to ask what to do with their accounts. While its natural for anyone to be tempted to want to stop the bleeding, if you are losing sleep over fears of losses in your retirement account, or if you have actually pulled out of the funds we recommended for you, there may be an action you should take - adjust your investments to reflect a lower tolerance for risk. This can be accomplished by retaking your Smart401k questionnaire reflecting your true concerns for market changes, and changing your investments to match the resulting recommendations.
The questionnaire we ask you to take before providing you with our recommendations is designed to assess your tolerance for market risk. If the current markets have caused you significant nervousness, it can be a sign that your true tolerance for risk is less than what you originally answered in the questionnaire. By adjusting your answers to reflect even a temporary concern, you will get a more conservative recommendation from us that should have less ups and downs than a more agressive allocation you may have used in the past.
If you feel you need to do something other than stay the course, please give us a call - we’d be happy to talk through your situation with you and help you figure out the best course of action.
