What's going on?

Vanguard � one of the world�s largest investment managers, stewarding almost $6 trillion of investments � warned on Monday that there�s a 50% chance US stocks fall 10% next year (tweet this).

What does this mean?

A market decline between 10% and 20% is known as a �correction� � with anything bigger a �bear market�. If Vanguard�s right, investors are currently over-optimistic about 2020: most expect economic growth to accelerate, thanks to the economy-boosting effects of this year�s interest rate cuts and a cooling US-China trade war. Happy campers have snapped up stocks in anticipation: the US market is on track for its biggest annual rise in six years.


But Vanguard cautions that these investors may have gotten ahead of themselves. If economic and company profit growth ends up disappointing, it thinks investors could start selling off newly expensive US stocks en masse � pushing their prices down over 10% on average.

Why should I care?

For you personally: The course of true stocks never did run smooth.

Stocks� values fluctuate � but in the long term, stock markets tend to rise. One way in which far-seeing investors try to take advantage of that without gambling on precisely when to buy is �dollar-cost averaging�. That�s when you invest a set amount every week or month, effectively paying the average price of the stock over time instead of its given price on any one day. If you�re investing the same amount each month, you�ll simply get more bang for your buck when prices go down.

For markets: Looking for entry points.

Vanguard suggests that many US stocks currently appear expensive compared to their expected profits: their �price-to-earnings ratio� is high. While �value� stocks � which appear cheaper compared to their expected earnings � do exist, Vanguard is more minded to keep hold of its cash for now. It reckons investors might want to wait until stock prices come down overall before buying in 2020.