Sad business partners at workplace, focus is on confused male
  1. Should I be invested in stocks?

Stocks have consistently outperformed bonds and inflation over multiple time periods. Since 1928, US stocks have averaged an annual return of 9.82%, bonds around 5.2%, and inflation 3.05%.1

Notwithstanding, stocks are most useful for long-term goals. So unless those goals have changed in the last few days, it probably doesn’t make much sense to overhaul an investment strategy based on the recent market activity.

  1. Isn’t the U. S experiencing a growth slump?
  • U.S. job growth continues unabated with 225,000 net new jobs per month created this year while New Claims for Unemployment remain near record lows.2
  • Home price appreciation has slowed, but housing activity remains robust.2
  • The automobile market has returned to pre-crisis volumes.2

     3.  Aren’t stocks overvalued right now?

The forward P/E on the S&P 500® is now 16.6x, down from 18.0x just a month ago. Across the pond, the Eurostoxx 50 Index is trading at 13.3x earnings down from 15.5x two weeks ago. Stocks are nowhere near “cheap” at these levels, but appear to be much better values than they were just recently.2

      4.  How long with this correction last?

Since 1900, there have been 35 declines of 10% or more in the S&P 500.  Of those 35 ‘corrections,’ the index fully recovered its value after an average of about 10 months.3

  1. What should I do now?

Assuming you were fully invested in a diversified portfolio prior to the market drop, there is not much to do.  We would consider rebalancing if stocks drop much further, but the best course of action is to not pay attention to the financial media overreaction to a normal market correction.

  1. ifa.com/12steps/step9/
  2. Capital Market Notes 8-24-2015 Nataxis Global Asset Mgmt.
  3. Azzad Asset Management-8-24-2015

 

 

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