We’ve seen the stock market rise to record highs recently, but how long can this last? 54% of American investors see the stock market heading for a crash, according to a recent Allianz survey.[1] There are a few reasons why we could see a market correction soon in our opinion, including the Delta variant and higher inflation. Are you prepared for a market correction?
Reason #1 The Delta Variant
There was a return to normalcy as COVID infection numbers fell, but then the spread of the Delta variant began. We could see the economy take a pause on its way to fully recovering. We still saw labor shortages, disrupted supply chains, and a drop in consumer confidence in September.[2]
Reason #2 Higher Inflation
Inflation has been higher than usual recently, and over two-thirds of survey respondents expect prices to move higher in the next year. [3] Inflation can hurt purchasing power, which can weigh down economic growth. The last time the inflation rate was over 5%, the U.S. was in the Great Recession.[4] Consider the long-term impact of inflation on your savings – how much could your purchasing power decrease over the next 20 years? For example, after 20 years with a 2% inflation rate, $1,000,000 would only have the buying power of $672,971.[5]
Why Might You Need to be Concerned?
A market correction could pose a particular threat to you as you near and enter retirement. Two retirees with identical wealth and long-term market averages in retirement can have very different financial outcomes depending on the state of the economy when they begin retirement. Someone retiring during a bear market might see their portfolio recover as the market does, but they may also see a reduction in the overall return of their portfolio because of how much they had to withdraw early on when prices were down. Have a plan for how you would handle a retirement curveball like a major market correction.
Work with us to create an investment strategy designed to fit your risk tolerance and retirement lifestyle goals. Retirement shouldn’t be a time of anxiety or worry; it should be a time when you feel financially secure and can enjoy the money you’ve worked hard to earn for decades. Sign up for a time to talk to us about how we can help.
[2] https://www.bloomberg.com/news/articles/2021-09-28/u-s-consumer-confidence-unexpectedly-falls-to-seven-month-low
[3] https://markets.businessinsider.com/news/stocks/stock-market-outlook-american-investors-stocks-crash-allianz-covid-inflation-2021-10
[4] https://www.fool.com/investing/2021/08/28/stock-market-crash-likely-5-data-points-of-concern/
[5] https://www.buyupside.com/calculators/inflationjan08.htm
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