SARASOTA, FL (WWSB) - It has been a roller coaster ride on Wall Street this week. From a massive downturn last Friday to big gains again by midweek. It can add anxiety to even the most seasoned investor. Financial Advisor and Planner, Esther Halt from Star Financial Services helps us understand the uncertainty.
We hear rough weeks like this described as market corrections. What is a correction?
Esther says, " A correction is a downturn in the stock market, which is generally short-term (weeks or months) and happens almost every year. The average loss is anywhere from 5% - 15%, although we have had short-term corrections that have been less than 5% and more than 15%. Normally at more than 20%, the market is considered to be in "bear market" territory, which would be longer-term. "
These corrections seem to happen somewhat annually. Esther says, " There are many reasons for corrections. some we've already discussed, but some others are: stocks have been rising for a long period of time and investors want to take some gains; sometimes stocks get overvalued, meaning they are trading for more than what they are believed to be worth; and sometimes, there is really no identifiable reason."
And how do we know this is just a correction, and not the sign of an impending downward spiral? Esther says, "Unfortunately, unless you can tell the future, you normally don't know until you are well into the cycle. Normally, a bear market or a crash is accompanied by a downturn in the economy, a bubble that bursts, or other financial or economic issues. Normally if we are in a bear market or crash, there are "red flags" ahead of time that you can look for so you can decide if you want to take some risk off the table. Current news issues, current global situations or rumors are generally not the makings of a long-term bear market or crash, but they can cause a correction of a few days, weeks or months."
Asked if we should change our investments during these corrections, Esther says,"Not unless you are a short-term trader. For most of my clients and most of the people I know, they invest for the future. If that is the case, you should invest based on your risk tolerance and meeting your goals. If you do that, you will be able to sleep at night while the market is going down and when it comes back up, you will be in a good place to continue growing your assets, taking your income and meeting your long-term goals. Timing the market is generally not a good idea and is almost impossible unless you are a seasoned trader or professional portfolio manager. Most of the time, if you try to time the markets rather than invest for long term goals, you might be more apt to get in at the top and get out at the bottom."
For more information you can contact Esther Halt at starfinancialsolutions.com
This segment has been paid for by Star Financial Solutions and does not reflect the opinions, beliefs, findings, or experiences of WWSB, LLC or its employees.