The Next Correction – Investment Advice for Accelerating Times
Woodstock – As the Down Jones hits 10,000, Alan F. Skrainka, CFA, the Chief Market Strategist for Edward Jones sees it this way:
“If you stayed the course with your investments during this financial crisis, chances are you are in better shape financially than those who abandoned their investments when the Dow was at 6,600, 7,600 or 8,600.
But you probably have questions about what’s next for the economy and the financial markets. Is the recession truly over? Will the recovery be strong or weak? Is the stock market overdue for a pullback? Is it time to sell your investments now that you’ve recovered some of the value lost, or should you buy more?
There will be much written and said about this period in our financial history. Lessons will be debated for many years.
But in our view, here are the most important lessons for investors:
Bear markets are unpredictable. They begin and end without warning. They often recover in dramatic fashion when we least expect it, frustrating the investor who has moved to the sidelines or who is waiting for a “dip” to get back in.
Develop and stick to your strategy. The best strategy to survive any crisis is to have a well-thought-out strategy and to stick to it. The most important elements of that strategy are to own quality investments, diversify* your portfolio and hold your investment for the long term.
Prepare. Don’t predict. The best time to develop that strategy is before a crisis hits.
History can teach us valuable lessons. We can’t predict what will happen in the future, but studying our country’s history teaches us that we often experience setbacks, some larger and more painful than we might imagine, and then we have recovered.
Those investors who understand and believe these investment principles may not know what will happen next, but they know what to do.
The stock market is never a one-way street. It never moves in one direction forever. As impressive as this rally has been, it’s inevitable that we will experience a setback. The stock market can correct at any time, for any reason. When that happens, you’ll likely hear more frightening predictions and forecasts from the crowd that was busy telling you to sell your investments in March, at the market’s recent low.
We don’t have to wait for that correction to give you our advice: Drops in the stock market can potentially be an opportunity for the long-term investor because historically, they’ve offered an opportunity to buy quality investments at a lower price.
If you stayed the course during this bear market, you can now consider yourself a graduate of the school of hard knocks. Congratulations. Now it’s time to apply those lessons learned. Contact your local Edward Jones financial advisor today.”
