Typically a decline of 20% in the markets is considered a "Bear Market". We may very well be headed down that road. Many stocks are already in Bear market territory. It is unlikely your accounts with us or your retirement accounts at your employer are feeling the full force of this drawdown. But it can still be scary. You likely didn't have nearly as much money saved in 2008 when the market had one of it's more steep declines. There is nothing we can say here that is likely to make you feel excited about the next 6-12 months. Quite honestly, we aren't very positive on the markets over the next several months either. The good news is that we don't have a crystal ball and could be completely wrong. We could see the markets bounce back in February as if January never happened. We actually don't want to see this kind of bounce back happen.
What we THINK may happen is also what we hope happens. We'd like to see the market bottom out wherever that may be and then start a slower climb back. When we look at things we think the bounce back after last August's declines were not a healthy thing. It was just volatility. Market declines can have a cleansing effect after a several year run up. We hope we are seeing the correction that we mentioned last year that we thought was needed.
With interest rates so low for so long it enabled companies and industries to extend themselves a little too far. This needs to be flushed out and when it happens like we are seeing now, the good investments go down with the bad. The difference, however, is that the good ones stabilize and tend to come back and eventually break through their previous all time highs.
I know we mention a lot about how the media spins things and it is certainly true. All day on Monday CNBC was airing "Special Report: Markets in Turmoil". This only adds to the problem. Euphoria is usually used when markets are climbing at unreasonable values. Right now, we are seeing the opposite...panic.
Is it a good time to invest? Definitely. If you have cash you don't need for the next 3 years then it is probably a great time in the first 6 months of this year to put it to work. I don't recall where I read it but a great quote about when to invest and when to pull money out goes something like this, "put money in the market when you have the extra money, take money out of the market when you need it." Simple but thoughtful.
I'll leave you with this final thought posed as a question. Where is the money coming out of the market going? Cash is still paying nothing. Bonds aren't a great place to be either. It won't take long before the market timing money (those investors who try to time getting in and out) decides 0% isn't all that great and they start coming back into the market. Will it be at -15%? -20%? We don't know because market timing doesn't work.