The coronavirus pandemic has sent stock markets on a ride. The Dow Jones Industrial Average dropped for a second straight day on Tuesday as new infections spiked across the country and an agreement on potential stimulus relief before the election came to seem like a longshot. On Monday, the Dow closed 650 points lower for its worst day since September.
Markets have been on a roller coaster for much of 2020. They hit all-time highs in February, cratered 34% in March, and had the best 50-day stretch in history before slumping again and leveling back out.
Bumpiness in the market can be triggered by external events, like a viral outbreak, but even drastic short-term circumstances shouldn't alter your long-term goals, money advisors agree. Here are a few expert-recommended steps you can take as an investor during volatile times.
If your goal is to save for your child's college education, your may expect to pull money out of an investment vehicle like a 529 plan after a 10- or 15-year target date. If you're hoping to save enough for retirement, on the other hand, you're probably intending to stay invested for at least a couple of decades, depending on your age.
Whatever your endgame may be, if you're investing for the long term, it makes sense to stay the course for now. Pulling out of your investments during a decline can make it tougher to recover when the market eventually rebounds, as it has always done before.
In a recent survey of nearly 1,000 Americans, 42% of investors who panic-sold at least one stock because of fears of the pandemic later said they regretted their choice.
Two-thirds of 2,500 respondents intentionally did nothing with their portfolio amid the crisis, a Bankrate survey found. Experts say that's smart: "The best investors are the ones who forget they have an account," Khe Hy, of self-improvement blog RadReads, told Grow in June.
Think about muting the noise or walking away from news coverage if it causes anxiety or tempts you to make an impulsive move. "Call your advisor to talk through it," Chris Briscoe, a certified financial planner, vice president, and wealth advisor at Girard, recently told Grow. "Take some time to revisit your plan and remember what you are investing for."
Look to shore up your portfolio with a diverse mix of stocks, bonds, and other vehicles before making any drastic moves. While some areas of the market may tumble, you're likely to remain invested in industries performing well if your investments are varied and spread across different sectors.
"Choose investments that are diverse in sector, size, and the one that is often missed: geographic location," Nicole Loftus, the founder and chief executive officer funding and investing platform SkinX, tells Grow. "Look at how the pandemic has affected some regions more than others, or some industries more than others. Diversification is everything and always has been."
You'll likely have multiple years to invest ahead of you, so try to maintain the long-haul perspective. If you "feel the need to do something in the face of market volatility," Greg McBride, Bankrate's chief financial analyst, explained, you can "add to positions that have been declining. This is 'buying the dip' — the equivalent of getting assets on sale."
Or, he suggests, look to "rebalance your portfolio back to its original investment mix, moving some money from what has outperformed into what has underperformed. This also enforces the discipline of selling high and buying low."
It's understandable market swings can make investors nervous, especially those with less experience. MagnifyMoney data shows younger people were more likely to sell in a crisis.
If you leave your money in the stock market, though, history indicates you're in a good position to grow your wealth. Looking back at the long-term performance and precedent of market recoveries can help keep you from doing anything rash.
Markets can move suddenly in either direction, so be sure to look at the full picture and "take a gradual approach," Becky Krieger, a certified financial planner at Accredited.com, tells Grow. "Market timing is impossible. Invest over time in a regimented way."
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