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Tue March 8, 2011
Time for a correction?
The market has had a phenomenal run up in the past two years, with the Dow Jones Industrial Average gaining nearly 6,000 points. Recent volatility indicates the market may be ready to fall.
But financial commentator Greg Heberlein tells KPLU's Dave Meyer there's no reason to panic. It's all part of the natural market cycle.
Last summer, the market retreated 14 percent, convincing some investors that another bear market like 2008-2009 was in the offing. The retreat was just enough to shake out the weak hands. In the past eight months, the Dow has vaulted a spectacular 2,700 points!
Greg says market corrections are necessary for at least three reasons:
- To eliminate the weak-kneed
- To encourage the pros to lock in some profits
- To bring the market down to a level that encourages more investment
How do we know the latest correction isn't a portent of doom?
Every economic signal has been higher, precisely what the higher market has forecast. Most importantly, the number of people returning to work has begun to multiply.
What could go wrong?
Just when you think you've figured it out, history repeats, but never exactly. A small number of seers still warn of danger. A foreign economy, previously thought to be stable, could collapse. Middle East instability could spread beyond the region. History is full of surprises.
What should you do?
Long-term investors should continue to focus on the long term. Short-termers should bank their profits. The good ones already have.