The Charging Bull statue at Bowling Green in New York’s financial district.
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As the US stock market is whipped up by rising inflation and the new omicron covid-19 variant, investors may wonder what to do with their money.
Many experts have a simple answer: nothing.
On Tuesday, stocks fell for the second day in a row after another indicator showed inflation rising. The November Producer Price Index, which measures wholesale prices, rose 9.6% for the year, a record pace and faster than economists expected.
The S&P 500 fell more than 1% and the tech-rich Nasdaq fell 1.73%. The Dow Jones fell about 100 points after an initial higher open.
In recent weeks, the markets have also revolved around fears of the omicron variant. Initially, stocks plummeted as the new variant took hold and then regained ground lost when data showed the strain caused milder disease than other forms.
While the volatility can be troubling for investors, experts warn against rushing a sell-off when markets fall. Additionally, falling stock prices can be a prime buying opportunity that investors should take advantage of.
Volatility is the norm
All investors need to accept market volatility – which is relatively common – as a normal part of the investment process and the best way to beat inflation, said certified financial planner Brad Lineberger, president of Seaside Wealth Management, based in Carlsbad, California.
âAccept volatility, because that’s why investors are paid to own stocks,â he said.
This means that investors must remain calm even in the event of extreme movements. Even though stocks always go up and down, long-term market returns still hinge on the same things: dividend yields, earnings growth and valuation movement, according to Zach Abrams, CFP and management manager. heritage building in Shaker Heights, Ohio. Capital Advisors based.
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Upward and downward movements can also be a good time to revisit your asset allocation. If you’re worried about a big drop, you can rotate part of your portfolio to less risky stocks to protect yourself from a possible market correction, which is a drop of more than 10%.
Volatility Can Present Opportunities
According to Abrams, when stocks fall, it can also be an opportunity to buy more and prepare for future gains.
This is because when stocks fall from recent highs, they are trading at a haircut and will likely rebound at some point.
Continuing to put money in the market when it’s down rather than selling is a great way to make sure you don’t miss a rebound. Data shows that selling when the market is falling can kick you out of the game for some of the strongest bounces.
For example, if you missed the best 20 days of the S&P 500 in the past 20 years, your average annual return would drop to 0.1% from the 6% you would have earned if you stayed the course.
And, even with the recent market downturn, stocks have performed well this year. Until Monday’s close, the S&P 500 is up 24% year-to-date.
Be prepared for emergencies
Of course, even if you know that stock market volatility can benefit you in the long run, financial advisers always recommend having an emergency cash fund so you can get through a market meltdown without selling.
If the stock market falls, it’s better to spend the money in your emergency fund than to sell assets at a loss that cannot be recovered, according to Tony Zabiegala, COO and senior wealth advisor at Strategic Wealth Partners, an Independence, Ohio -based company.