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Pullbacks, Corrections, and Bear Markets

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What’s the difference? What do these terms mean for you?

The COVID-19 outbreak has put tremendous pressure on stock prices, prompting some investors to blindly and indiscriminately sell positions at a time when the entire market is trending lower. Worried investors believe “this time it’s different.” When the market drops, some investors lose perspective that downtrends – and uptrends – are part of the investing cycle. When stock prices break lower, it’s a good time to review common terms that are used to describe the market’s downward momentum.1,2

Pullbacks. A pullback represents the mildest form of a selloff in the markets. You might hear an investor or trader refer to a dip of 5% to 10% after a peak as a “pullback.”1

Corrections. The next degree in severity is a “correction.” If a market or markets retreats 10% to 20% after a peak, you’re in correction territory. At this point, you’re likely on guard for the next tier.1

Bear Market. In a bear market, the decline is 20% or more since the last peak.1

All this is normal. Pullbacks, corrections, and bear markets are a part of the investing cycle. When stock prices are trending lower, some investors can second-guess their risk tolerance. But periods of market volatility can be the worst time to consider portfolio decisions.

Pullbacks and corrections are relatively common and represent something that any investor may see in their financial life, from time to time – often, several times over the course of a decade. Bear markets are much rarer. What we are experiencing now represents the start of the ninth bear market since 1926. This bear market follows the longest bull market on record.1

How is this bear market going to affect me? That’s a good question, but it’s something that you won’t fully understand in the here and now. The average bear market lasts 146 days for the Standard & Poor’s 500.2

An investment strategy, formed with the help of a trusted financial professional, has market volatility factored in. As you continue your relationship with that professional, they will also be at your side to make any adjustments as needed and help you make any necessary decisions along the way. Their goal is to help you pursue your goals.

Challenging times like these create opportunities for new innovations, discoveries, and growth like a forest after a fire. If you can add money during these times when some are fearful, you will an opportunity for rewards when we come out on the other side.

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accountireng or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Investment advice offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities.

Citations.

1 – kiplinger.com/slideshow/investing/T018-S001-25-dividend-stocks-analysts-love-the-most-2019/index.html [3/10/2020]

2 – marketwatch.com/story/the-dow-just-tumbled-into-a-bear-market-ending-the-longest-bull-market-run-in-historyheres-how-those-downturns-last-on-average-2020-03-11 [3/14/2020]

 

Making Investment Decisions: Are your choices based on evidence or emotion?

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Provided by American Wealth Management

Information vs. instinct. When it comes to investing, many people believe they have a “knack” for choosing good investments. But what exactly is that “knack” based on? The fact is, the choices we make with our assets can be strongly influenced by factors, many of them emotional, that we may not even be aware of.

Deal du jour. You’ve heard the whispers, the “next greatest thing” is out there, and you can get on board, but only if you hurry. Sound familiar? The prospect of being on the ground floor of the next big thing can be thrilling. But while there really are great new opportunities out there once in a while, those “hot new investments” can often go south quickly. Jumping on board without all the information can be a bit like gambling in Vegas: the payoff could be huge, but so could the loss. A shrewd investor will turn away from spur-of-the-moment trends and seek out solid, proven investments with consistent returns.

Risky business. Many people claim not to be risk-takers, but that isn’t always the case. Most proficient investors aren’t reluctant to take a risk, they’re reluctant to accept a loss. Yes, there’s a difference. The first step is to establish what constitutes an acceptable risk by determining what you’re willing to lose. The second step is to always bear in mind the final outcome. If taking a risk could help you retire five years sooner, would you take it? What if the loss involved working an extra ten years before retiring; is it still a good risk? By weighing both the potential gain and the potential loss, while keeping your final goals in mind, you can more wisely assess what constitutes an acceptable risk.

You can’t always know what’s coming. Some investors attempt to predict the future based on the past. As we all know, just because a stock rose yesterday, that doesn’t mean it will rise again today. We know this, but often we “shrug off” this knowledge in favor of hunches. Instead of stock picking, you can exercise a little caution and seek out investments with the potential for consistent returns.

The gut-driven investor. Some investors tend to pull out of investments the moment they lose money, then invest again once they feel “driven” to do so. While they may do some research, they are ultimately acting on impulse. This method of investing may result in huge losses. Eliminating emotion. Many investors “stir up” their investments when major events happen, including births, marriages, or deaths. They seem to get a renewed interest in their stocks and/or begin to second-guess the effectiveness of their long-term plans. It’s a case of action-reaction: they invest in response to short-term needs instead of their long-term financial goals. The more often this happens, the more incoherent their so-called “financial strategy” becomes. If the financial changes they make are really dramatic, it can lead to catastrophe. Many times, there is no need to fix what isn’t broken or turn away from what they’ve done right. By enlisting the assistance of a qualified financial professional (and relying on their skill and expertise), you can be sure that investment decisions are based on facts and made to suit your long-term objectives rather than your personal, changing emotions or short-term needs.

American Wealth Management may be reached at 775.332.7000 or info@financialhealth.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Investment advice offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities.