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Are U.S. Equity Markets Headed for a Correction?

July 20, 2017

Marcus Winbush, CFP® — CEO, True North Capital Alliance

Based on overall 2017 data, investors have reason to be encouraged by recent economic and market performance. Over the past several months, investors have seen overall positive market returns and low volatility with a few recent exceptions. The calmer equity markets have been a welcome reprieve from the periods of higher volatility a few years ago.

The U.S. economy continues to expand, adding 222,000 jobs in June (unemployment at 4.4% up slightly from the previous month). Somewhat inexplicably, inflation continues to hover below 2%. However, since hourly earnings continue only modest improvement, the lower inflation rate has helped soften the impact of slow wage growth for workers.

Despite this generally positive picture, you are probably seeing news stories speculating about why and when the next market decline or correction is likely to come. As I am prone to remind investors from time to time, no one can predict future market moves up or down. No matter how thorough the analysis, no one knows what is coming. Instead of giving too much attention to these media speculations, we would do well to focus on what we can know about the markets and what we can control.

What we can know …

Stock markets will always have some level of volatility; that is, markets go up and down—sometimes with little warning. According to Christy Smith, Investment Adviser with The Presley Group, “we’re in the second-longest bull run in history.” But we know that stocks do not go up forever. At some point in the future, therefore, we can expect a pullback or a correction from recent highs. This is simply how the markets work.

The good news is that although stock prices rise and fall, global markets have proved resilient over time. That’s why investing is best viewed as a long-term commitment.

What you can control …

Historically, capital markets have rewarded long-term investors, providing a long-term return that has offset inflation. Of course, we do well to accept that the markets involve some risk and uncertainty and that historical results may not be repeated in the future. However, if you’re wondering whether you will be prepared for the next correction, my advice is the same as always: Focus on what you can control.

  1. Review/reassess your investment strategy: Work with your trusted advisor to review your overall investment strategy in light of your life stage. Discuss your values and how they relate to your short- and long-term financial investment goals. Review any recent life changes and ask your advisor whether your financial plan should be updated. What timeframes are important to you? How much risk is acceptable to you?
  2. Plan: Consider working with your trusted advisor to create a comprehensive financial plan that factors in all your assets, not just your investments. This can be a joint effort to answer some of your big life planning questions: What are the top 5 things you want to accomplish in your lifetime? Does your retirement plan or 401(k) include proper choices? Will your retirement plan allow you to retire when and how you wish? Is your estate plan complete and up-to-date (e.g., will, durable power of attorney, health care power of attorney, etc.)?
  3. Diversify: Your trusted advisor can help ensure that your portfolio is broadly diversified. The goal of a well-diversified portfolio is to target assets that offer the potential for higher expected returns.
  4. Stay the Course: A professional advisor can provide the expertise and encouragement needed to help you stay disciplined regardless of short-term market conditions. Further, your advisor can add investment value by managing expenses (e.g., transaction fees and portfolio turnover) while ensuring that your portfolio retains its broad diversification.

Finally, invest for the long-term and maintain a prudent, balanced approach to financial investing.

True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability. Diversification does not eliminate the risk of market loss. Investment risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful.

Past performance is not a guarantee of future results.

All expressions of opinion are subject to change. This content is intended for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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