Don't panic, but there is now a 70 percent chance of a U.S. stock market correction, according to research conducted by fund giant Vanguard Group. There is always the risk of a correction in stocks, but the Vanguard research shows that the current probability is 30 percent higher than what has been typical over the past six decades.
Vanguard, which manages roughly $5 trillion in assets and is a proponent of long-term investing, isn't sounding the alarm bells to scare investors out of the market. But according to Vanguard's chief economist Joe Davis, investors do need to be prepared for a significant downturn.
"It's about having reasonable expectations," Davis said of the research, which attempts to provide investors with a view of what can occur in the markets in the next five years. "Having a 10 percent negative return in the U.S. market in a calendar year [within a five-year forward period] has happened 40 percent of the time since 1960. That goes with the territory of being a stock investor." He added, "It's unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue."
In its annual economic and investing outlook published last week, Vanguard told investors to expect no better than 4 percent to 6 percent returns from stocks in the next five years, its least bullish outlook since the post-financial crisis recovery began.