I’ve been in the financial planning world for close to 30 years now, and during that time, I’ve seen rapid market growth sometimes lead to a correction, which is generally accepted as a drop of 10-20 percent in an index, such as the Dow Jones Industrial Average® or the S&P 500®. Why does this occur? I think a lot of people think, “I just made three percent (or four or five, etc.). I’m going to sell and take profits.” When those people start selling, other investors can get scared, and begin selling as well. This kind of selling can eventually drive a correction. I believe it’s possible we could see a market decline soon. It may not fall enough to meet the definition of a market correction, but I think we’ll see some profit taking and pullback in the near future.
If that dip does occur, I would perceive it as a buying opportunity for many people. When consumers get their additional stimulus funds and COVID-19 vaccines are widely distributed, we could see the most significant recovery in the history of our country. After all, we started from a very low point last April. Just returning to even was a five-fold increase in the economy. We’ve already seen better-than-expected recoveries in other nations, with economic surprise indices—a measure of the differences between realized and expected performance—at record highs.
I think that bodes very well for our future—so well that my 2020 “Fearless Forecast” of the Dow reaching 31,000 actually came to fruition—against all odds given the economic conditions we’ve seen. Of course, I didn’t know last January we’d have an unprecedented pandemic that would bring our economy to its knees just a few months later, so I’d basically recanted that bold prediction until late December.
For now, I’m feeling fairly optimistic about sitting back and riding the bull (market) I foresee in our future. In fact, I recently told Barron’s I think the Dow could hit 35,000 in 2021!
So, if we do see a correction soon, I think it’s best to take it in stride, and maybe even buy in. If you’re interested in participating in market growth but concerned about mitigating your risk, contact us today to learn about our Invest and Protect™ strategy, which is designed to take advantage of the market’s unlimited upside while also shielding you from bear market conditions. We’d love to talk with you.
Ken Moraif, CFP®, MBA
Senior Advisor at Retirement Planners of America