The stock market is down, and you think that means it's a good time to buy. Or you're convinced you should sell. Or you're just going to do nothing and continue with your day. What should we make of it all?
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First: No one knows what will happen. Truly. But for some perspective, the dip the Dow is experiencing isn't that crazy, especially when compared to recent gains. Headlines yesterday touted the point loss, but it decreased by 4.6 per cent, while the S&P 500 fell 4.1 per cent - that's not a crash, though it is jarring after a year of gains. Last year was a great year for stocks. Naturally, there's going to be a correction, and none of this is coming as a huge surprise. Experts and financial writers have been cautioning about the end of the historically long bull market for over a year (not that it's the end just yet). And though it will end, the market has always gone back up.
Second: Everyone's affected differently. If you're going to need money soon (say, in five years or less), then you may want to consider moving it to something safer than equities. But if you're solely investing for retirement that's a decade or more down the road, it doesn't mean that much for you yet. Stay the course, and stick to your long-term investing plan. The best thing you can do is save money routinely, over a long period of time. For most people, according to Kristina Hooper, chief global market strategist at Invesco, this means:
- Maintain broad diversification. For many investors, this could include not only stocks and bonds, but also an allocation to alternatives.
- Don't be scared, and don't be impulsive. Be disciplined no matter what the market environment, and keep saving and investing according to your long-term plan.
You can up your retirement savings and your emergency savings as well. "Ignore short-term market fluctuations," says Nick Holeman, CFP at Betterment. "Continue saving towards your goals during both good times and bad. You can't control the stock market, but you can control how much you save and you can control your behaviour." Take the long view.
But you should take a look at your asset allocation and "stress test your risk tolerance," as Penny Wang writes in Consumer Reports, especially if you set up your portfolio a while ago.
You're of course free to buy as well, though investing 101 says not to try to time the market (and unless your plan is try to sell it right away because taxes). "It's important to keep in mind just how small this dip is," says Holeman. "Really, it brings the stock market back to its value around the beginning of the year. That is hardly a dip, if you ask me."
As mentioned above, you likely have a financial plan - you shouldn't change it because stocks dipped a bit.