When markets fall, it’s easy to forget that downtrends are part of the investing cycle. So when prices slip, it's a good time to review some common terms that you may be hearing that describe today’s financial markets. The first is “pullback,” the mildest form of a drop in the markets. You might hear a market commentator refer to a dip of 5% to 10% after a peak as a pullback. The next term is “correction,” which is used when markets drop 10% to 20% after a peak. Then there is a “bear market,” where the drop is 20% or more since the last peak. When prices are trending lower, it’s easy to second-guess yourself. But over the years, I’ve found that doesn’t help. We build portfolios anticipating that there will be good times and bad. I'm not sure how anyone can be surprised of either market pullbacks or recessions. They happen often enough. In fact, I can share with you the data on pullbacks, corrections, bear markets and recessions. I'm certain their frequency would surprise you. Whether markets are up or down, it is important to ensure that your investment strategy remains aligned with your goals, time horizon, and risk tolerance. None of us can control the market's direction, but we can control how much risk and the kind of risk we are taking on in pursuit of our goals. It's been said that every past market decline was an opportunity and yet many feel that every future decline is not. If you find yourself thinking “this time, it’s different”.... it's not. Have questions? We have answers. If you would like to speak about your investment strategy or the amount of risk your portfolio is exposed to, please feel free to call or simply send me an email. I would be happy to speak with you and provide our thoughts. Send us an email at avalente@rwbaird.com or call me at 214-373-2925. Antonio |
The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. |
The Cycle of Investing
