Advisor Insight

Market shocks should be wake-up call for investors: Advisors

Key Points
  • Billionaire investor Ray Dalio thinks the probability of a U.S. recession before 2020 is high.
  • CNBC Digital Financial Advisor Council members differ on whether a recession is in the cards but agree that investors always need to be prepared for possible market volatility.
Investors must avoid a false sense of market complacency: Advisors
Investors must avoid a false sense of market complacency: Advisors

A period of very calm and quiet trading has lulled investors into a sense of complacency that, by some measures, has not been seen in years, according to some financial advisors.

The recent sharp movements in markets have been a wake-up call for complacent investors, experts say. From February 2016-January 2018, volatility in the stock market was non-existent. Then, volatility came roaring back in February, as investors aggressively sold stocks after an incredible run. And now, some investors are concerned that the recent sell-off on Wall Street might get much worse and eventually that could trigger a recession.

While many financial experts believe the current sell-off in the global markets is a "minor correction," some pundits see the increased possibility of another recession in the United States.

Billionaire investor Ray Dalio thinks there is a relatively high chance the U.S. economy will stumble into a recession before the next presidential election, in 2020.

Dalio, chairman of Bridgewater Associates, said the U.S. economy is not currently in a bubble, but he said it might not take long to get there and then to move on to a "bust" phase.

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He made his comments during an appearance at the Harvard Kennedy School's Institute of Politics.

We spoke with several members of the CNBC Digital Financial Advisor Council to weigh in on the current market conditions and the possibility of a recession.

"I really feel strongly that we're not going to see a recession until at least a year, year and a half — maybe even longer," said Cathy Curtis, founder and owner of Curtis Financial Planning. The U.S. and global growth are strong right now and could even be stronger next year, she added.

"So, to me, this year may again be another positive year for stocks," Curtis said.

Ron Carson, founder and CEO of Carson Wealth Management Group, and Carolyn McClanahan, founder and director of financial planning at Life Planning Partners, both said that while the economy looks strong and earnings are growing, investors need to understand their risk and make sure their assets are properly allocated.

Carson and McClanahan agree that investors need to be prepared for any further market volatility. Investors were lulled into a false sense of market complacency over the last few years, they said.

"[Investors] need to make sure they're aligned with their risk budget, because while fundamentals are fantastic, they're at elevated levels," Carson said.

"The markets have been overvalued, and now they're [way] overvalued," McClanahan said. That's why it's key that people are invested appropriate to their ability to take on risk and not on the current valuation of the market, she added.