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Mutual Fund Giant Vanguard Group: 70% Chance of Stock Market Correction
Posted By Isaac Nuriani
We’ve been hearing for some time that the high-flying stock market is due for a significant fall. Now, one of the biggest names in the mutual fund business is declaring the chances of that occurring are greater than they’ve been in many years.
According to an article at CNBC.com, the Vanguard Group, the world’s largest mutual fund company by assets (roughly $5 trillion), has determined through proprietary research that there’s presently a 70 percent chance of a correction in the U.S. stock market. The generally accepted definition of a stock market correction is a drop in the market of 10 percent to 15 percent from recently-achieved highs.
While corrections are an inherent feature of stock investing, Vanguard researchers have concluded the possibility of a correction is 30 percent greater right now than it has been over the last six years.
Stock Market Performance: Reality vs. Perception
The study is an important reminder of some of the unappealing – and always-lurking – realities of market investing, so frequently forgotten during periods of market exuberance.
Markets will always skew more recent performance averages in a favorable direction during the years when equities are running in overdrive. But reality, as illustrated by long-term historical numbers, always seems to catch up, eventually.
On that note, in discussing the market’s currently perceived vulnerability, Vanguard Group chief economist Joe Davis notably points out that “having a 10 percent negative return in the U.S. market in a calendar year has happened 40 percent of the time since 1960.”
That’s a very revealing statistic. But I’ll wager if you ask the average person, particularly in this present market climate, how often the market has registered a negative 10 percent (or worse) return in a calendar year in the last 57 years, they’d answer with a frequency of much lower than 40 percent of the time. Perception, including misperception, has a way of becoming reality to investors…and that can be a very dangerous thing.
Something else the folks at Vanguard said recently, according to the same CNBC.com article, is that stock market investors should expect returns as low as 4 percent per year for the next five to six years. THAT certainly doesn’t sound like the kind of return investors expect when they commit their hard-earned dollars to equities, does it?
It’s easy to find yourself caught up in the euphoria during periods when the stock market is on a strong and extended upward run, but smart investors will look past all of the apparent “winning” to ferret out what really lies underneath.
For example, although the market has obviously been soaring for many years, much of that movement has been fueled by unprecedented stimulus measures applied in the wake of the Great Recession. So-called quantitative easing, an extreme form of expansionary monetary policy undertaken by the Fed ostensibly for the purpose of revitalizing economic activity, has resulted, in part, in the perpetuation of abnormally low interest rates. It is these low rates that have gone a long way to help fuel the current market run, which growing numbers of investors are now increasingly fearful of.
Remember, too, the issue at hand is not just a possible correction, as expensive as that will be for many people. It’s also the significant unlikelihood that once markets settle back down, equities will resume cranking out double-digit returns for several more years. As Vanguard Group is predicting, not only is that not anticipated, but stock investors should expect very modest, single-digit returns for many years to come.
Correcting the Stock Market Correction with Gold and Silver
The cyclical nature of our economy, including the equities markets that are an intrinsic part of the economy, demands investors be appropriately diversified into assets that have shown a historical propensity for performing well when equities lag. Gold and silver are examples of two such assets.
At Augusta Precious Metals, we offer a wide variety of products and services to individuals interested in protecting their savings with physical gold and silver, including premium gold and silver coins available at extremely competitive prices. To learn more about how the inclusion of gold and silver in your portfolio could potentially provide an effective hedge against stock market volatility – including against a market correction now seen as imminent by an increasing number of experts – I invite you to call Augusta today at 855-242-4121.
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