Originally Published February 11, 2014
Fear of impending emerging market woes, the Federal Reserve reducing their quantitative easing, mediocre earnings, and devastatingly cold weather back east are all contributing to the current volatility in the market.
After a significant gain in 2013, the Dow Jones Industrial Average is down almost 4% in 2014.
So, what is happening? Where did our glorious recovery go?
According to Wharton finance professor Jeremy Siegal, “It [is] a little bump. No bull market goes up in a straight line. We haven’t had a correction…for at least two years, which is pretty remarkable.”
So, will we have a correction, defined as a 10% decline in the market? Will stocks rebound and continue to bask in the glory of 2013-like returns? Or will we see another cliff? While we unfortunately do not have a crystal ball at our disposal, we do not anticipate another crisis or cliff with markets plunging down to the likes of 2008. Do remember that the Price to Earnings Ratio (P/E) of the S&P 500 Index is around 17, not far above its historical average.
This lack of future telling brings us back to our ever-important strategy: asset allocation. With the proper level of careful diversification, we can position ourselves to better cope with all movements in the market, from the glory of a 32% 1-year gain to the heart-stopping days when the Down Jones Industrial Average is down over 300 points, or almost 2%.
Proper asset allocation followed by rebalancing is just one technique we use at Bourke Wealth Management to help manage the emotional swings from investing. Call us if you would like assistance in managing your financial future.