Risk & Business Magazine Marcotte Magazine Fall 2017 | Page 29

MARKET CYCLES
Will You Be Prepared When
The Market Cools Off?
Markets Have Cycles & At Some Point
The Major Indices Will Descend
W
e have seen a
tremendous rally on
Wall Street, nearly nine
months long, with
the S&P 500, Nasdaq
Composite, and Dow Jones Industrial
Average repeatedly settling at all-time
peaks. Investors are delighted by what
they have witnessed. Have they become
irrationally exuberant?
THE MAJOR INDICES DO NOT ALWAYS
RISE
That obvious fact risks becoming “back of
mind” these days. On June 15, the Nasdaq
Composite was up 27.16 percent year-
over-year and up 12.67 percent in the past
six months; the S&P 500 was up 17.23
percent and 7.31 percent, respectively,
over those same periods. Performance
like that can breed overconfidence in
equities. 1,2
The S &P last corrected at the beginning
of 2016, and a market drop may seem
like a remote possibility now. Then again,
corrections usually arrive without much
warning. You may want to ask yourself:
“Am I prepared for one?” 3
ARE YOU MENTALLY PREPARED?
Corrections have been rare in recent
years. There have only been four in this
eight-year bull market. So it is easy to
forget how frequently they have occurred
across Wall Street’s long history (they have
normally happened about once a year). 3,4
The next correction may shock investors
who have been lulled into a false sense
of security. You need not be among
them. It will not be the end of the world
or the markets. A correction, in a sense,
is a reality check. It presents some
good buying opportunities and helps
tame irrational exuberance. You could
argue that corrections make the market
healthier. In big-picture terms, the
typical correction is brief. On average, the
markets take from three to four months to
recover from a fall of at least 10 percent. 4
ARE YOU FINANCIALLY PREPARED?
Some people have portfolios that
are not very diverse, with large asset
allocations in equities and much smaller
asset allocations in more conservative
investment vehicles and cash. These are
the investors likely to take a hard hit when
the big indices correct.
You can stand apart from their ranks
by appropriately checking up on, and
diversifying, your portfolio as needed.
Thanks to the recent rally, many investors
have seen their equity positions grow
larger, perhaps too large. If you are one of
them (and you may be), you may want to
try to dial down your risk exposure.
Do you have an adequate emergency fund?
A correction is not quite an emergency, but
it is nice to have a strong cash position
when the market turns sour. Are your
retirement and estate plans current? A
prolonged slump on Wall Street could
impact both. Many older baby boomers
had to rethink their retirement strategies
in the wake of the 2007–2009 bear
market.
Finally, a deep dip in the equity market
should not stop you from consistently
funding your retirement accounts. In a
downturn, your account contributions, in
essence, buy greater amounts of shares
belonging to quality companies than they
would otherwise.
BY: JOSEPH JOHN,
WEALTH MANAGEMENT
ADVISOR
A correction will happen. Maybe not
tomorrow, maybe not for the rest of 2017,
but at some point, a retreat will take place.
React to it with patience, or else you may
end up selling low and buying high. +
Joseph John, a University of Nebraska
– Kearney graduate, has over 25 years
experience in the financial services
industry. Joe is one of the principals
of Marcotte and serves on the Board
of Directors. Joe works with his clients
on a one-on-one basis by providing
personalized, fee-based financial planning
and wealth management services. Joe has
earned his Chartered Life Underwriter
(CLU), Chartered Financial Consultant
(ChFC), Registered Health Underwriter
(RHU), and Registered Employee Benefits
Consultant (REBC) designations. Joe is a
Registered Investment Advisor (RIA), and
is licensed in Life, Health and Annuities
Insurance and FINRA Series 6, 63 and 65
registrations. He is a Qualifying and Life
member of the Million Dollar Round Table.
Securities offered through Cambridge Investment
Research, Inc., a Broker/Dealer, Member FINRA/SIPC.
Investment Advisory Services offered through
Cambridge Investment Research Advisors, Inc., a
Registered Investment Advisor.
Marcotte Wealth Management, LLC and Cambridge
are not affiliated companies.
1 - money.cnn.com/data/markets/nasdaq/ [6/15/17]
2 - money.cnn.com/data/markets/sandp/ [6/15/17]
3 - fortune.com/2017/03/09/stock-market-
bull-market-longest/ [3/9/17]
4 - investopedia.com/terms/c/correction.asp [6/15/17]
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