Stock market correction is coming, but when? | TribLIVE

This morning I was thinking about writing this week’s column.

I had to make a quick stop in Walmart. As I was walking through the parking lot, someone made a comment to me about their concerns that the stock market was about to start a correction. I was not sure why they told me this concern until the man told me that he knew who I was and read this column. Later in the day, I spoke to two other people on the telephone who raised the same issue. I decided that I would change today’s topic to discuss this issue.

It is easy to understand why many people feel this way. As I write this column on Monday the DOW is down more than 100 points. This means that it is back in the red for 2015. With almost half of the year gone, no one invested in the DOW (overall stock market has made any money). Of course certain individual companies have done better, but the broad general market has gone nowhere. The current blame gain is that it is because Greece may default on its loans. Before this it was Putin or ISIS or Ebola.

The U.S. economy has been sputtering. Layoff notices seem to be increasing. The New York Fed’s Empire State general business index fell from 3.09 in May to negative 1.98 in June. This is the lowest since January 2013. The Federal Reserve is expected to raise interest rates for the first time in nine years in September. During this time frame, the stock market has gone up about 220 percent. It is hard to find anyone who does not agree that the biggest reason the market went up so much is zero-interest rates.

Companies improved profits since their borrowing cost was lower. Many borrowed low-cost money to buy back shares of their own stock and automatically increase earnings per share just by the fact that fewer shares were outstanding. These reduced numbers of shares cause the market to rise because there is less supply available. Many people took on more market risk than they really wanted, because there was no other option in this low-interest rate environment. All of these facts will change as interest rates rise.

The Great Recession officially ended in 2009. Yet, six years later we are still in a zero-rate environment. The Fed is faced with challenges like never before. In 1937, they raised rates at the wrong time and extended the Great Depression. Michael Arone, managing director and chief investment strategist at State Street Global Advisors, says, “Most investors assume the prevailing lower-for-longer consensus is bullish for both equities and bonds.” His view is that a tardy Fed has a good chance of proving bearish for bonds and longer term for equites as well. “Risk in this environment is growing, not shrinking,” he said. “The longer the Fed stays on this path, the more aggressively it may have to tighten and the crueler the asset price adjustment will be when it finally comes.”

About half of the analyses think the market is going to hit outer space and the other half think it will hit the bottom of the ocean floor.

There are serious concerns. No one can time the market – not you, me or any of the people on the television shows. What we can do is assess our own situations. The trouble is, we have several major obstacles to accomplishing this. One is greed. We believe that can somehow we can time the market and maybe squeeze out a few more pennies.

Procrastination is another major issue. Often people know in their gut that they should take some action, but we are always going to do it tomorrow. Yet tomorrow never comes.

How can something as important as retirement not be one of the most important subjects in your life? Hopefully you will enjoy this time for several decades. Yet making poor decisions getting ready for retirement can greatly diminish a lifetime of work.

Another major obstacle is paralysis of analysis. This is when we try to over-analyze the situation and instead of making a decision, we stay the status quo even if it is not the best option for us. Sometimes friends who do not understand all of the options confuse us or someone trying to preserve the assets in financial products with more risk and less benefits get you to stay put instead making needed changes. Maybe sometimes it is just a fear of change.

If you believe the stock market will start to move again and continue to go straight up, you should stay in it if you can afford the risk. The advantages of the stock market are the possibility of the greatest gain (also the possibility for greatest loss) and liquidity. If the market is up, liquidity is good. If the market is poor, the liquidity comes at the expense having to sell a larger percentage of your assets.

If you have 10 years to go until retirement and you can tolerate the volatility, the market may be a good place for you to invest. If you have a large pot of assets and have your future income needs met, you may be able to take more risk with some assets.

If you are approaching retirement and you cannot afford to lose any assets, you need to look at safer options. When retiring, income needs must be met first. You can get better returns than low CD rates in financial products that are safe.

Everyone’s situation is different as are our risk tolerances. You need a responsible plan that considers increased health care during retirement.

Do not wait until you retire to make these choices. A market correction could wipe out a large portion of your assets. Also, the longer you are in safe assets, the bigger the returns. Decisions you make today could affect you for years to come. Know all of your options and do not take more risk than necessary to create a lifetime income for you and your family. Will the market correct? Without a doubt.

It always does. The only question is when will it happen and how will it affect your retirement?

If it will have no effect, do not worry. If it could have a big effect, what are you waiting for?

Gary Boatman is a certified financial planner who serves as president of the Monessen Chamber of Commerce.

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Stock market correction is coming, but when? | TribLIVE