Even with the dramatic market swings this year, it is hard to imagine we will end 2018 where we started. On December 31, 2017, the Dow closed at 24,719. As I write this article, the Dow is at 24,622. That is correct—it has been a flat performance year. Where do investors go from here?
At the recent Schwab conference in Washington, D.C., fund managers and economists were all expressing the same sentiment: “This may be the correction we have all been preparing for.” A correction is when stocks decline 10% from their recent highs. According to Deutsche Bank, on average, the stock market has a correction about once a year; however, they have been quite infrequent since the Great Recession.
A flat market signals lagging investor interest due to the uncertainty with trade tariffs, healthcare, and political posturing, to name a few possibilities. Investors must not become apathetic because of all the “investment noise” on TV, radio, and the internet. Instead, focus on the strong fundamentals (e.g., historically low interest rates, low unemployment, strong corporate earnings, etc.), take time to periodically reassess your portfolio holdings, and increase your savings as you receive bonuses and pay increases.
Investors cannot predict market corrections but can position themselves for the inevitable volatility with an appropriate portfolio allocation based upon their individual situation.