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We'll show you how to get a better understanding of the markets and become a confident, competent investor. And we lay it all out for you in plain English (well, a Southern variety of English, anyway). Hey, you work hard for your money - learn how to make your money work hard for you!
Pullbacks, Corrections & Bear Markets
You’ve probably heard this old social saying: ‘All the single folks want to be married, all the married folks want to be single’. Bartenders tend to mumble it around closing time. Everybody wants to be somewhere else - including investors!
The recent run-up in stock prices, added onto the gains from this almost 9-year bull market, have investors on the fence. Ones who are not currently in the stock market want to get in, ones who are want to get out - and both groups’ only question is, “When”?
> from the bullish ‘market experts’ - “Get in now!”
> from the bearish ‘market experts’ - “Get out now!”
The only logical advice we hear from the calmer talking heads on TV - and we tend to agree with them - is for investors to wait for a market pullback or correction to make any portfolio moves (getting in or getting out). That answer sounds simple enough, but it does bring up a couple of other questions: what is a pullback and what is a correction?
Market gurus generally agree that price drops in an uptrend fall into these three categories -
1. PULLBACK: market prices fall up to 10%
2. CORRECTION: market prices fall 10% to 20%
3. BEAR MARKET: market prices fall more than 20%
We use our charts to identify these three types of price drops, then we carefully watch the market’s reaction to those drops. Do prices bounce back after a pullback or do they sink lower? Do they bounce back after a correction and resume the uptrend? Or do they continue to fall, making lower lows and lower highs as the uptrend rolls over to a downtrend, or bear market.
The market’s reaction to these drops is what we base our portfolio moves on, not the drops themselves. Remember, we are trend followers - we go where the market leads us, we don’t try to guess or anticipate its direction.
When price drops take place, it’s smart to do a little math and mark the pullback, correction and bear market levels on your charts. Update those levels when you do your weekend chart review and stay aware of current price levels. Keep an eye on the volume, too - it often gives us clues about the strength or weakness of a price move (up or down).
Below is an example of what we’re talking about - it’s a weekly chart of the S&P 500 as of the end of January 2018, shaded to show the different levels of a pullback, correction and a bear market. Now, you don’t have to get all fancy like this with your charts, but mark those levels - and update them. That way you won’t get left out at closing time!
PS: Things were looking a little dicey Wednesday, so we decided to wait until the end of the week to post this with an updated chart (glad we did, considering Friday’s collapse!). This is the S&P 500 through Feb. 2, 2018 with pullback, correction and bear market levels all clearly marked.
NEWS YOU CAN USE
"Imposter Scams: Don't be Fooled by
Pitches from 'Regulators'"
"New Law Eliminates Roth Recharacterization Rule"
"Fidelity Suffers Temporary Outage Amid Volatile Markets" from MarketWatch
"AllianceBernstein Top Managers Hired Away
by Goldman Sachs & Fidelity"
"Fidelity is Adding an Extra Fee on
Vanguard Funds in its 401(k)s"
from Motley Fool
VIEWS YOU CAN USE
"10 Tips to Improve Your Investing Fitness"
from US News & World Report
"How Women Approach Investing"
"Your 401(k) and Rising Interest Rates"
"The Truth About Diversifying Overseas and
the History of Dow Crashes"
"More Americans Hold Stocks, for Better or for Worse"
Winter Reading List 2018
Long winter nights give us more time to read and learn, so we've got 4 books for you that are a little more in-depth! Throw another log on the fire and get busy!!
Hey - this ain't rocket science!!!
>>>>> And just so you know:
Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a few coins for sending you there - and that helps us cover the costs of keeping our website running free!
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)