Next correction stock market crash prediction

Next correction stock market crash prediction

Author: DATO On: 08.06.2017

Investors are in for a rude awakening about a coming stock market correction — most just don't know it yet. No one knows when the crash will come or what will cause it — and no one can. But what's worse for most investors is they have no clue how much they stand to lose when it inevitably happens. Many investors have no idea how their portfolios would fare if the equity market took a big hit , according to a risk-tolerance survey FinMason did late last year. Most investors are unaware of the amount of risk in their equity portfolios.

As a result, these investors make poor, costly sell decisions at the worst time: Most individual reactions to an unexpected loss are much worse than reactions to an anticipated one.

Only 57 percent of investors both those who have an advisor and those who don't said they understand the term risk tolerance. Investors who work with an advisor do know more: But working with a financial advisor hasn't helped as much as it should.

Only a little more than one-quarter of those who work with an advisor 27 percent had been told by the advisor how much their portfolios could lose if there were a market crash. Of those investors whose advisors had talked to them about a crash, 62 percent believe their loss would be less than what their stated exposure to equities would suggest, the survey found.

The survey found that up to 57 percent of clients working with advisors will likely panic and sell in a crash. The worst-case scenario should be obvious. Long-term portfolio allocation science dictates only a small percentage of assets in cash, so as much as 90 percent to 95 percent of most portfolios are subject to huge short-term losses.

Brandon Corso, director at Edelman Financial Services, said advisors who downplay potential losses are making a mistake. Corso prefers having a frank discussion with clients about the risk in their portfolio. It's best for advisors to have this conversation in blunt language. FinMason's Wakeman evokes horror stories from the Great Depression. He added, "It's the client taking the risk, so they are entitled to know the risk they are taking, and there is no better way to talk about it except in a crash scenario.

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John Ndege, CEO of the risk tolerance software provider Pocket Risk, said the time is ripe for advisors to be having this talk with clients. Ndege focuses on two kinds of risk analysis. Risk tolerance involves having a thorough understanding of someone's psychological risk tolerance and how much of a drop in their portfolio they can handle psychologically before they want to sell.

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Risk capacity is more objective. It looks at how much the person has saved, the security of their income and whether they will need to withdraw assets any time soon. He doesn't talk to clients about a worst-case scenario, "because the worst case is the one we have not imagined yet," he said. Instead, Dowd explains to clients that while "there are certain aspects of market collapses or boom bust cycles that do echo each other and are similar, it never happens in the same way, and the catalyst is never the same.

Dowd said the biggest issue he runs into today is how badly the Great Recession wounded many investors. Clients aren't taking too much risk in their portfolios; they don't have enough risk to meet long-term goals. They have large cash positions and are afraid to dip their toes in the water.

Inflation and loss of purchasing power make that a big investing problem to solve. There will likely be periods of time when client accounts fall in value, but that should not be a reason to jump ship if advisors communicate effectively. It's also a good idea to remind clients about the risk-reward trade-off.

Wakeman said any advisor who enjoys "keeping clients confused because it gives them an overarching authority" is making a mistake. Clients are becoming more diligent about asking questions rather than blindly trusting their advisors. I tell them, 'By the time you retire, the market will crash three to four times, so get used to it. When it comes to retirement, whatever money an older divorcing couple has needs to be divided — after high legal bills.

The recent past was great for long-only risk assets, but hedge funds provide unique advantages for investors. An IRA trust prevents an irresponsible heir from receiving money outright from the IRA upon the account owner's death.

The International Paris Air Show is celebrating its 52nd anniversary this year with the big movers and shakers in the aerospace and defense industry all attending the event. Biotech stocks are on pace for their best weekly performance of , as investors feel relief after word from Washington.

Biotech has already outperformed the broader market year to date, rising 30 percent in the period.

The Next Stock Market Crash Prediction for - The Wall Street Examiner

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It's high time for a blunt conversation about investing and market crashes Leslie Kramer. Having a blunt, but not terrifying, conversation It's best for advisors to have this conversation in blunt language.

Relocating in retirement should be done with caution 5 mistakes to avoid when rebalancing a portfolio Overlooked tax deductions that will cost you John Ndege, CEO of the risk tolerance software provider Pocket Risk, said the time is ripe for advisors to be having this talk with clients. The fine line is to have this conversation without scaring the clients.

Risk of recession across developed markets not high: Get this delivered to your inbox, and more info about about our products and service. Leslie Kramer Special to CNBC. Why now might be the right time to look at hedge funds.

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next correction stock market crash prediction

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