How a Stock Market Correction can Influence Retirement

SafeMoneyMasterLogo img

In past blog posts, among other things we’ve discussed the importance of portfolio diversification. Having too much of your money allocated in volatile markets – such as the stock market – can leave it vulnerable to market downturns. It could lead to sizable retirement losses – an outcome which may take years from which to recover.

In late April to early May, the S&P 500 index was hovering at 2% below its record high. Given this trend, many industry analysts were calling for the possibility of a market correction of 10%. Marc Faber, editor of The Gloom, Doom, and Boom Report, had a less favorable forecast.

“For the last two years, I've been thinking that U.S. stocks are due for a correction. But I always say a bubble is a bubble, and if there's no correction, the market will go up, and one day it will go down, big time,” Faber opined on April 30, 2015 on “Trading Nation” on CNBC. “The market is in a position where it's not just going to be a 10 percent correction. Maybe it first goes up a bit further, but when it comes, it will be 30 percent or 40 percent [at] minimum!”

Why So Bearish?

Faber’s bearish outlook stems from the view that stocks are being artificially bolstered by central bank policies across the globe. According to Faber, these central banks’ quantitative easing campaigns, along with low yields, have created a landscape of “grossly overvalued assets.”

"Look at the market since November of last year to now. The market is up 2 percent. It hasn't done much, and a lot of stocks are breaking down. I don't think that the market is in a healthy condition.”

This had led to a situation which Faber says “will unwind and cause some problems." Faber isn’t necessarily correct in the extent of his forecast here, but it does showcase the importance of being prepared. It’s also worth noting that in 2012, PunditTracker gave Faber an “A+” rating for 73% accuracy on 191 graded calls it had made (Pundit Predictions: How Accurate are the Pros?”, Rich Smith,, December 19 2012).

In short, it's better for people close to retirement to be prepared to weather these potential market effects -- not to react once they have suffered losses. Otherwise financial losses could mean having to work longer, spend less, or even compromise on retirement lifestyle expectations.

The Effects of Prior Downturns

When the 2008-2009 financial crisis came about, it was the worst one since the Great Depression. In October 2007, the Dow Jones Industrial Average index closed at a pre-recession, all-time high of 14,164.43. Then in an 18-month window, it had a 53.4% decline to 6,594.00 in March 2009. Likewise, between December 2007 and December 2008, the S&P 500 index dipped 37%, resulting in retirement account losses of $2.8 trillion (almost one-third of their value gone).

This highlights several important points:

• A retirement plan should account for unexpected contingencies and worst-case scenarios including market downturns
• Your retirement number should include an amount for overcoming such obstacles
• An early market downturn can pose a great threat to retirement security – it’s best to be prepared
• An asset allocation with a heavy proportion of market-based investments may leave money exposed to excessive risk
• It may be worth checking out different financial products to lock in existing investment gains for wealth preservation

Worried about Your Money?

If you're worried about keeping your wealth intact, it may be worth considering to shift over to a safer strategy. Some retirement vehicles such as fixed index annuities offer the opportunity to lock in your hard-earned investment gains. Fixed index annuities have been growing in popularity due to their capacity for principal protection, tax deferral, and money growth potential. It’s important to keep in mind that the value of all financial products will vary from consumer to consumer. The best solutions are those customized to your unique needs.

When you're ready for personal guidance, can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

Author: Super User

Proud Member

 FBIC LogoHorizSOFA Logo1

Contact Info

Safe Money Broadcasting Home no glow img

1107 Key Plaza #450
Key West FL, 33040-4077

Find a Financial Professional

bottom map