The markets are down today and many are crying that the sky is falling. The end is nigh. Poppycock!
Let's take a close look at where we are today and when we enter correction territory and, if things worsen, a bear market.
The TSX is down 250 today. The DJIA is down 520. The S&P 500 is down 60 and the NASDAQ is down 185. And I assure you, this is not a time to panic. It is not even time to make a blanket buy recommendation. Many stocks will still be trading near historical highs.
My Million Dollar Retirement Portfolio DEMO is at $1,183,000 at this moment. It recently touched $1,206,000. There is $61,350 in cash. At what point is my DEMO portfolio entering correction territory? Remember a correction is when equities retreat from 10-20% from the high of the past year.
- Portfolio High Point: $1,206,000
- Total Equity Value was: $1,206,000 - $61,350 = $1,144,650
- Correction Boundary for Equities = $1,144,650 - 10% = $1,030,185
- Correction Boundary for Total Portfolio = $1,091,535
- Portfolio High Point: $1,206,000
- Total Equity Value was: $1,206,000 - $61,350 = $1,144,650
- Bear Market Boundary for Equities = $1,144,650 - 20% = $915,720
- Bear Mkt Boundary Total Portfolio = $1,091,535 = $977,070
A truly bad bear market would be something like 40%. Bears can be worse but 40% would be a big one. So what does a big bear look like? Do the math: $750,000 is close. And what does one do at such a moment? Buy. This could be a once in a lifetime sale of equities. Keep in mind, the deepest bear markets rise phoenix like very quickly. A three year recovering would be a very long recovery period. A little over a year would be a good guess.
Oh, when do I start buying? A drop of 17% in the equity value of any individual stock makes me think "Buy."
I don't go all in, though. Put no more than a third to a half of your cash into the market. Keep a good chunk for future buying if the market continues to deteriorate. If the bear gets truly fierce, you want to have kept some powder dry as they say.
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