Broker Check

Investment Winter: How Often Do Corrections Occur?

| December 04, 2019

Winter Solstice is on Saturday, December 21st this year. This is the shortest day of the year and things only look better from there, right? Yeah I can't believe anyone that lives in the Midwest for more than a season believes that. The days may be getting longer, but we still face very cold, snowy, icy and looong days ahead.

We have winter once per calendar year. Because we are anticipating it, we don’t freak out when the white stuff starts falling from the sky. Tony Robbins in his book Unshakeable points out that we also have a financial winter. The markets on average have a market correction of 10% about every year and the average correction takes 14 weeks to recover ( So why do we freak out when it happens? Is it because we can never predict exactly what month it is going to be?  It would be like waking up in July the day we are leaving for our annual family road trip to see a foot of snow on the ground. 

It is very easy to want to sell funds and move to cash during times of downturn and then put it back in when the market is going up. That may be a good plan if you can answer me this: What day is the market going to stop going down and start going up? I think I hear crickets. None of us can predict this. Even the “experts” on TV and big investment magazines often miss the mark. Nerd reveal: I subscribe to a lot of different investment magazines. During certain times of the year, I get really behind and the magazines stack up unread.  Then, it gets cold outside and I catch up. Often as I am flipping through reading articles about market prediction, I think “Oops, you missed that one buddy”. The authors often predicted something that really missed the mark.  Some reputable magazines and investment shows will even review their own predictions at the end of the year and how many were hits and misses. 

Another scary fact is that often when the market starts to go back up after a downturn, it swings up very quickly.  According to missing the largest upswing days can be very detrimental to your portfolio.  Per this article, if you invested a hypothetical $10,000 on January 1, 1980 and let it remain in the market for all of the ups and downs, it would be worth $659,589 (article written on March 22, 2019). If you were at work when the market went up on its 10 best days and couldn’t get in until a day or so later, your portfolio would only be worth $318,071.  That is less than half! 

Greg Johnson, Wealth Manager, says “We do not attempt to be market timers. We do not try to sell and buy to time what is going on in our world. We match risk tolerance with investment mix. At Johnson Insurance, we believe in diversification to make sure some of your money is in the areas of stocks and bonds, foreign and domestic. This way you are poised to go up when part of the market goes way up and more cushioned when part of the market drops. Although we monitor client’s accounts on a frequent basis we believe in investing for 5, 10, 20 and 50 years down the road. We don’t need to focus on the short term ups and downs but make sure our investments are aligning with the market and gaining long term."

Winter will not last forever. Spring will return to the Midwest again. Spring will return to the markets after a correction. As stated above, the average market correction lasts 14 weeks.  However, if you are losing sleep at night or spending time fearing how much your investments could go down it is time to make a call to your investment advisor.  

By Kristi De Rycke, Registered Assistant

Oh how true these words are and how quick we as investors are to overreact. It is difficult not to when all you hear on the news is negative, negative, negative. This is the reason we believe all investors should be invested in accounts that match their risk tolerance. We do not attempt to time the market instead we believe in a properly diversified portfolio that matches our clients risk tolerance. Markets go up and down and we as advisors need to help our clients understand why they are invested the way they are. If they are several years from retirement we shouldn’t have their portfolio 100% invested in stocks and if they are 25 years old we shouldn’t have all their money invested in bonds. We educate our clients on their options and help them build a well-diversified portfolio that matches their risk tolerance. We do our due diligence on the investments we are recommending, but often times find ourselves visiting with clients about their goals versus the exact performance of their portfolios. If we do our job right at the beginning of a relationship we don’t have to worry about all the scare tactics our friends in the media like to share with our clients as they know they are positioned the way they should be. Winter comes around once a year, but the warmth of the spring sure is enjoyable just like the bounce in the markets when they occur.

By Greg Johnson