While fluctuations in the stock market can be unsettling, they are part of the investment landscape and shouldn't provoke panic, especially for those investing for the long haul, like retirement or college savings.
Even if you aren't glued to financial news outlets, dramatic stock market shifts are hard to overlook. Recently, a chaotic sell-off triggered a suspension of trading shortly after the market opened. Just fifteen minutes later, trading resumed, and many investors breathed a sigh of relief as some losses were quickly recovered.
This pattern, like a dramatic play, has unfolded many times before. Investors should remember the golden rule: stay calm and stick to your strategy.
“Markets can drop sharply, but they also bounce back. It’s unpredictable when that happens, and you don’t want to miss out,” advises a leading financial analyst.
Short-term market volatility is tough, but patience is key. “There will always be ups and downs over time,” says a Certified Financial Planner. “In a balanced portfolio, there’s never been a decade where you’ve lost money.”
Here’s what to keep in mind regarding stock market shifts:
For Long-Term Investors …
Stay the course. “Markets can plunge, but they often rebound quickly. Timing is unpredictable, and being sidelined isn't advisable,” the expert shares.
If you plan to leave your investments untouched for five or ten years, you can weather any downturns. This could also be a chance to reassess your portfolio and rebalance your investments if market swings have disrupted your asset allocation. If it's been over a year, consider adjusting your holdings back to target levels and avoid obsessively checking your account balances.
“If you’re investing consistently and have time on your side, don’t fret too much about short- to medium-term volatility,” states a portfolio manager.
“If you’re not planning to access those funds soon, the daily market fluctuations shouldn't be a source of stress,” says a retirement income director.
For Those Approaching Retirement …
Build your cash reserves. Declining stock values can disrupt your retirement plans, but having a cash cushion allows you to avoid tapping into investments until they recover. Aim to save at least a year’s worth of expenses before retiring.
It may be wise to consult a financial planner to ensure you’re on track for retirement and your asset allocation is appropriate. “When you’re within five to ten years of retirement, consider reducing risk,” a financial insights vice president recommends.
If You Haven’t Started Investing …
Now is the time to begin! Despite the uncertainty in stock prices, they may be available at lower rates than in recent weeks. Starting with your workplace retirement plan is an excellent option, particularly if your employer offers matching contributions on your savings. If you have access to a target-date fund, it can simplify the process by creating a diversified portfolio for you that adjusts over time. For those without a workplace plan, consider setting up your retirement account through a discount broker.
The best strategy to ensure you buy stocks when they’re priced low is to invest regularly: automate your contributions, which will free you from worrying about market conditions or forgetting to invest.
