A Quick Reminder on Market Risk

It has been a great year for the financial markets with both the S&P 500 and the Dow Jones Industrial Average setting all-time highs. The current S&P 500 rally is the eighth longest in history without a 10% correction, and it has been over 700 days since the S&P 500 has pulled back by at least 10%. (FYI: The longest streak was during the 1990-97 bull market when stocks rose 233% in 2,553 days.) Although many outstanding issues – rising interest rates, the debt ceiling, municipal bankruptcies, Syria, etc. – could affect the market, it seems as if it has grown immune to the media crying wolf every three or four months predicting the next apocalypse.

We are sharing this information for a reason. Long market rallies often result in investors increasing their appetites for risk and blurring their focus on their individual goals. In short, long rallies can breed complacency. When the markets seemingly go up every day, it is common for investors’ eyes to get hungrier than their stomachs can ultimately handle.

Our advice for investors who are feeling a new-found confidence is to recall how they felt during the credit crisis of 2007-2009. While we do not expect the same kind of economic shock that we experienced during that period, we do expect a “healthy” market correction. We just do not know when.

We view corrections as necessary evils that remind investors of the risks in the stock market. Investors must remember to review their long-term financial goals and assess how much risk they need to undertake in order to achieve those goals. If such attention is not given, overt confidence can lead some investors to blindly increase the risk in their portfolios to chase a potentially higher return, while putting their goals and dreams at undue risk.

Please let us know if anything happens in your life that may impact your goals and risk profile. We welcome your thoughts and questions and always enjoy hearing from you.

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