Feb 22, 2019 3 min read

The Standard & Poor’s 500 was down for the year in 2018, the first time that occurred in years. November and December were very volatile and some people thought it was the beginning of a correction. The market, however, has soared 15 percent since Christmas Eve, reducing some of the loss for 2018 and making the start of 2019 very promising.

The end of 2018 was not a major correction, which has not happened since 2008. It will happen sometime; it always does. Many investors have been lulled into believing the market will always keep going up. That is not the way the market works.

Many people expect to get an 8 percent return in the market. Vanguard, one of the biggest mutual fund companies, has dramatically cut its expected rate of return over the next decade. Its chief investment officer, Greg Davis, said: “They expect a 5 percent median return during this time. This is 3 percent lower than he would have said five years ago. They believe the market is at the high end of fair market value.”

This view is echoed by many other investment companies. Most expect smaller returns. The economy is not growing as quickly as it was. There are threats of a trade war between the U.S. and China. Europe is stating it will take harsh actions if tariffs are put on their automobiles.

Interest rates are rising and this will have an effect on stock prices. Congress is threating to limit stock buybacks, which have had a major positive impact on stock prices. Brexit is moving along, causing a lot of uncertainty in the world economy. All of these things could disrupt the markets.

While there never is a good time to lose a lot of money in the market, there is a worse time. That is right before or after starting retirement. This is when sequential risk could wipe out your savings.

Deciding how much money you should have at risk in the market now and any time are the same criteria. When do you need the funds, do you have significant emergency money? And what is your risk tolerance?

If you must have the funds in the next couple of years, maybe they should not be in the market. If you can’t afford to lose the money, why are you putting it at risk? If you will not be able to sleep at night, you need a different asset allocation.

If you have way more money in the market than your risk tolerance score, maybe something is wrong. I recently saw someone with a risk score of 40 percent and their adviser had them 98 percent at risk. This should not happen.

Don’t get greedy. If the stock market goes down and you are young, it is on sale. Just keep investing and you will be dollar cost averaging, as long as you will not need the funds soon. If you are a senior and the market goes down, you may not have the time to recover.

No one can time the market. Your stock market money must always be in the market and your non-market money should never be in the market. Be a smart investor.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.