The stock market has been cooling off from the year’s highs. And that’s fine! Really. There are a lot of reasons for this, but the upshot is that unless you retired yesterday or plan to retire soon, you can more or less ignore the fluctuations. (If you’re nearing retirement, read this article for some ideas of what to do with your investments.)
Equities (aka stocks) have historically gone up. Yes, they’ve sometimes gone way, way down, but the general trend is upward. Day-to-day readings don’t really mean very much, and you’ll drive yourself crazy following them. So, the best thing to do is to keep your money invested and keep on keeping on. If you have a long-term plan, which could be as simple as, “I’ll contribute X percent of my salary until retirement, mostly in equities,” then you’re good. This shouldn’t cause you to deviate from it. This sort of correction is normal and perfectly fine.
“One can’t earn the stock-market-like returns (historically around 9.5 percent average annual increase) without volatility,” writes Ellevest, an investing platform. “In other words, earning returns without risk just isn’t a thing.”
One could also look at it, as Adam Grossman notes at the Humble Dollar, as a reminder of the importance of diversification (note that this post was published Sunday, so the percentages may be slightly off):
Consider the performance of some of the market’s favorite stocks this year: Apple is down nearly 26 percent since the beginning of October, Facebook is down more than 39 percent since the summer, and chip maker NVIDIA is down a sobering 50 percent from its high. No one can predict where the market will go next, but you definitely can reduce risk by ensuring you don’t have outsized exposure to any one investment.
One thing you may have heard that continues to be true is that the stock market is not the economy. Stocks can be doing well and the rest of us can be doing poorly. In fact, that’s more or less been true the past few years. That’s one reason why the president’s braggadocious tweets when the stock market was doing well earlier in the year felt so hollow. Perhaps stocks were up, but wages are stagnant, no one can afford health care, etc. (It’s also because the market has little to do with a single president’s policies alone over the long term. But that’s a topic for another day…) Likewise, a few down days doesn’t necessarily mean a recession is imminent.
Over at the Humble Dollar, Jonathan Clements had a smart take : Basically, this is no big deal compared to all of the other poor financial decisions we make every day that cost most of us significantly more (again, this was published last week, when things were bleaker):
- Homeowners who closed on their house sale might have lost as much as six percent of the proceeds to real-estate commissions.
- Car buyers who picked up their new vehicle probably gave up more than 10 percent of the purchase price just by driving off the dealership lot.
- Those who signed separation agreements with their soon-to-be-ex spouse likely surrendered 50 percent.
- Investors who bought load funds might have been nicked for 5.75 percent.
- Employees who got their paycheck were dunned 7.65 percent for payroll taxes, maybe 12 percent for federal income taxes and perhaps three percent for state income taxes.
- Those who then spent their paycheck might have lost another five percent to sales taxes. And if the money they spent was $100 in cash withdrawn from an out-of-network ATM, they could have lost another $3 to bank fees, or three percent.
Oh yeah, the S&P 500 also slipped 1.82 percent. Thank goodness for small losses.
A little perspective never hurts.
