October 22, 2018
Yes we are! In the past few weeks, the markets have sent investors on a bumpy ride. Last week, the S&P 500 and the Dow both fell a little over four percent. This week they recovered some of the losses. These ups and downs amid otherwise good economic news can make people nervous. Many may be wondering if it is the end of the longest bull market in history. In periods like this, some investors may be tempted to head for the exits. This morning, I want to talk about what is behind some of these ups and downs, and what you should and should not be doing.
There are a few reasons we are seeing some angst on Wall Street in recent days. First, interest rates are causing some investors to lose their nerve. As the Federal Reserve continues to raise rates, some worry that this could have a cooling effect on the economy by driving up borrowing costs for consumers and companies. On top of that, the reality of the trade tensions is setting in. The costs of the Trump administration's tariffs are starting to settle in the minds of many investors. Tariffs drive up costs and complicate supply chains, hurting businesses and consumers alike. Wall Street has taken notice. Finally, recent good news on the economic front may actually be making some investors nervous. With consumer confidence high, unemployment low and GDP growth beating expectations, it is easy for some to get carried away. This is not to say we should be expecting an end to the bull run — no one can time the market — but it does cause some investors to exercise caution.
There are two big mistakes that people make in times of volatility. The first is to get anxious. For most of us, while our retirement is still far off in the horizon, it is easy to think about what is happening with our savings today. You have to resist the urge to run for the exits in times of volatility. On the flip side, you also want to resist the urge to try to time the markets. Individual investors get burned in periods of instability when they try to be one step ahead of the markets. This is a recipe for bad results.
The best thing you can do is to continue to make contributions to your retirement accounts! If you keep in mind that you are investing for the long term, falling stock prices mean that the money you contribute today is buying more than it was at the beginning of the week, and that is a good thing. Taken in that perspective, it is easier to remember that saving for retirement is a marathon, not a sprint. If you are still anxious about the market’s volatility, reach out to your financial advisor or the people who oversee your 401(k) program and ask them about your investments, making sure they are allocated for your age, and for the current climate. They can help you calibrate the risk and diversity of your investments, and give you some peace of mind.
This information in the Financial Tips section is provided for educational purposes only and is not tax, legal, financial planning or investment advice. Neither the information nor any opinion expressed in this section constitutes an offer to buy or sell any securities or advisory products. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing involves risk.