Stock Market Corrections…Will Happen

Stock Market Corrections…Will Happen


by Justin Eccleston

Markets cannot and will not go up forever. Part of earning a reward is taking on risk. History has shown us that over the long term, a diversified portfolio of stocks has achieved new highs as investors have been patient and held them through the bad times.

When markets do become volatile, the investors who liquidate during the pullbacks are certain to lose money from the highs their portfolios have achieved.  These investors typically sell, after seeing their portfolio being down to obtain the safety of cash and in many cases, this is the wrong decision, one driven by the emotion of fear.

Having a clear and well thought out plan on how your portfolio assets should be allocated, given certain risk parameters are keys to long term wealth management.  Having these parameters in place and understanding how the portfolio can perform in good times and bad should take some of the fear away of long-term investing.  At Biltmore Capital Advisors we are constantly reviewing client’s risk tolerance from when the relationship first starts and over their life time.

Below are historical bull and bear market returns for the period of 1926 – 2018.  Studying this chart is a great reminder of not only how great the good times can be, but more importantly, how quickly wealth can be destroyed in bear markets.  There are no investment guarantees, but we do have this type of historical data that we can study to get an idea of how investment portfolios will perform over long periods of time. It’s important to discuss both long term and short term financial objectives with your advisor and properly identify your risk tolerance. From there, your advisor can rationally build an investment portfolio that meets your risk profile and long term financial objectives.

Source: First Trust L.P., Morningstar. Returns from 1926 – 9/2/2018.

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