We’ve seen the stock market rise to record highs recently, but how long can this last? According to a recent Allianz survey, 54% of American investors see the stock market heading for a crash.[1] There are a few reasons why we could see a market correction soon, 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 head into 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. In contrast, if someone with a similar portfolio retires during a bull market, they can take withdrawals of fewer equities and lower their risk of causing smaller returns throughout retirement. This is because there are more equities left to generate returns later on.
Come 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.
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[1]https://markets.businessinsider.com/news/stocks/stock-market-outlook-american-investors-stocks-crash-allianz-covid-inflation-2021-10
[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
