Risk, perception, fear and points of reference.

risk perceptionDeclines and their definitions:  Market declines in general to 5% are considered “noise,” 5 to 10% are called ”dips,” and your emotions may be getting the best of you over noise and dips … (10 -15% are considered ”moderate corrections,”  15-20% are “severe corrections,” and over 20% is called a “bear market”). Bull and Bear Markets are defined as general market trends either up or down. Funny, nobody gets concerned when things seem to be going well …. BUT … that’s when bubbles start!

With those definitions from above in mind … and using the DOW* as the reference point from the record high on May 28th at 15,409.39:

Should the Dow decline to:

Noise: 14,638.92

Dips: 13868.45

Moderate correction: 13097.98

Severe correction: 12327.51

Bear market if DOW below: 12327.51

Changing or messing with allocation is market timing and does little to change the outcome as to whether you will reach your goal … other than most likely mean that your mistakes about timing cost you your goal. Saving more and spending less have more to do with goal success. Having a broadly diversified portfolio globally that is allocated according to your risk comfort level … and then sticking with that portfolio until your life changes (not market changes) suggest reallocation. Here’s a prior blog on the difference between diversification and allocation.

Past posts on fears with suggestions how to behave in light of fear.

 

*DJIA is used here, although the S&P500 could also be used … in either case the point is to calculate where sentiment is.

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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