Time To Sell? Time To Buy? Time To Be Patient?

With the market mayhem now stretching into its third month, the tolerance for risk for the everyday investor predominates. And prevails. And preoccupies.
 
How tolerant, or in this case intolerant, you are to risk might prove prudent for you and your portfolio, which includes your retirement plan to review the history of market corrections.
 
Market corrections, whether stock or bond market, global or domestic, occur on average every seven years, with the most recent market meltdown occurring in 2008 and lasting into 2009.
 
Over the last 70 years, there have been nearly 60 downturns that have transpired, with the range of retreats from 5 percent to 10 percent.
 
The more sustained corrections since 1945 have generated sell-offs covering the spectrum of between 10 percent and 20 percent, which includes our current market maneuvering.
 
Lest we forget, there have been 12 periods of volatility where the range of the retreat has reached 20 percent. Or more.
 
Now that we know the historical frequency of the reoccurring corrections that complicate the markets, how long do these pitfalls plague your portfolio?
 
Historically, the time for the markets to reach their bottom has taken, on average, 14 months.
 
With that information, the next logical question becomes how long will it be before the markets, on average, return to where they were before they corrected?
 
The answer: On average, it will take a little more than two years – 25 months to be exact.
 
So armed with this information, should you be selling? Or buying?
 
That would depend on how long you have until you need your money. If you are two decades from your retirement, then patience might prove a prudent path to follow.
 
You should still consider re-evaluating your holdings, whether they are stocks, bonds, mutual funds or annuities, to determine if those positions are still suitable for your goals and objectives.
 
You also should determine if your present positions are sufficiently diverse – not all stocks or all bonds, not all invested domestically or globally – so as to avoid the probability of large losses. Diversification, while not eliminating your market risk, will serve to reduce your risk.
 
Based upon your facts and feelings, you also should decide whether a buy-and-hold strategy is the prudent path to follow, at least for now.
 
Of course, I recommend that you speak with your financial representative before making any firm decisions. You should ask him or her to look back over prior correction periods and calculate how long you portfolio took to recover to its pre-market meltdown levels. To provide accurate information, these calculations should use actual price per share, actual dividends and actual capital gains.
 
After that, you should have the information you need to make your decision as to whether you should buy, sell or remain invested. 
 
And remember, it is not timing the market that works. It is time in the markets.
 
Colin Smith is president of The Retirement Company, LLC. To suggest topics for him to write about in Insights or to ask him questions related to his business, call (440) 668-9785 or contact him by email at [email protected].