The Market Will Fall! (Here’s what you can do about it)

I am asked one question more than any other: “What is the stock market going to do?”

The only reasonably correct answer is: “It will fall.”

The aggregate value of stocks will go lower at some point. That much is reasonably certain because that’s what has happened in the past. It’s a reality for which every investor must be prepared.

A slightly less concrete, yet historically accurate response would add “…and very likely go up again.”

But this isn’t the answer people seek. “What is the stock market going to do?” is only part of their query. Left unsaid is “…and when is it going to do it?”

That question is totally unanswerable, because it requires an ability to defy physics and know the future, which is absolutely unknowable. Yet far too many perceived experts will gladly misrepresent a mere guess as an unequivocal certainty.

The future cannot be known. Period. Anyone who states otherwise is either a fool or a liar.

We can, however, make a reasonably sound guess about stock market behavior based on about a century of data. In aggregate, stock prices will rise, fall, and probably rise again. Of that, I am pretty confident. When markets will fall and subsequently rise cannot be known or even estimated with any degree of accuracy.

All we can know is what J.P. Morgan said many decades ago in response to the “what will the stock market do?” question. His answer was, “It will fluctuate.” So we must invest with that reality in mind.

Once you understand that you can’t know when the stock market will rise or fall (and trading individual stocks is even more difficult), you need to invest based on you, not the market.

Historically, an investment in a 100 percent  globally diversified portfolio of stocks has suffered a loss of more than 50 percent in a single year. You should have all of your assets in equities (another word for stocks) only if you are absolutely certain that you would remain invested in a such a frightening scenario. Bear in mind that the worst historical case for owning just a few individual stocks is a 100 percent loss.

The accompanying chart shows the average annual return and the worst one- and five-year-returns for various stock-to-bond portfolio ratios along with that portfolio’s historic standard deviation (a measure of volatility—lower numbers mean less volatility).

Your financial adviser should work with you to assess your risk tolerance before allocating your investments. There are also free online tools available to help you determine how much portfolio volatility you can stand.  Check out RisQuiz at With a better understanding of your risk tolerance, you will be able to create a portfolio for the one guarantee that stocks offer—they will fall.

The host of the nationally syndicated Don McDonald Show for over 20 years, Don now co-hosts Talking Real Money with Tom Cock on Seattle’s KOMO radio Saturdays at noon ( Don also publishes the investing magazine, real investing journal (


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