Simply Money

Simply Money

Each weeknight at 6pm, Simply Money makes money simple for you. Join hosts Amy Wagner and Steve Sprovach as they share easy-to-understand and...Read More

 

Three things to remember during this market volatility


Question: Charlie in Boone County: Should we be concerned about the bad start to the year for stocks? Is a bigger drop coming?

A: This is a concern we’ve been hearing a lot lately. And while it’s always disconcerting to see the stock market fall – as well as the value of your investments – keep these few points in mind.

First, assuming you don’t sell, your losses are only ‘on paper.’ So take comfort in that.

Second, times like these are the ‘cost of entry’ for participating in the market. Simply put, there are going to be times when the stock market drops. In fact, it’s common for stocks to experience 5 to 15% declines in any given year (according to our data at Allworth Financial, since 1980, the average drop in a calendar year has been 14%).

Third, if a ‘bigger’ drop does occur (which, in all honesty, that word is quite relative and is likely different for every single person reading this column), market corrections are actually quite healthy and normal. They’re not something to be feared, especially if you’re able to keep a long-term perspective. Because history shows that, more often than not, remaining patient during selloffs has been a profitable decision. But is it possible to actually determine if and when ‘a big one’ is coming? Unfortunately, no one has a crystal ball. But you can look at corporate earnings and economic data to at least get some idea of where stocks might be headed in the immediate term.

Our Investment Committee analyzes economic data all day long. And right now, while things on Wall Street are choppy, we don’t see any ring-the-alarm causes for concern yet (we’ll let you know if and when we do). So, here’s the Simply Money Point: If you have a well-developed long-term investment plan, stick with it. If you have one, but this market turbulence is still keeping you up at night, that likely means the investment mix doesn’t match your risk tolerance and it might be time for an adjustment or a meeting with your advisor.


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