Investing headlines have many Americans wondering what’s ahead for the stock market. In 2018, there were periods of extreme volatility and many investors experienced declines in their annual returns.
Reacting to the gyrations, some jittery investors pulled out of the market, while the patient ones who stayed in experienced the benefits of the market’s upswing. Keep in mind that in times of upheaval, trying to time the market becomes a fool’s errand. That’s because market timing involves two precise investing decisions: when exactly to get out of the market, and when to get back in.
In December 2018, the market experienced another huge decline but the S&P 500 Index did rebound. In fact, the day after Christmas it had its best performance since 2009. So while those investors who sold off parts of their portfolio may have avoided some temporary drops they missed some substantial gains.
Bull or Bear in 2019?
In a bull market, the economy is humming along, unemployment is low, consumers are spending and stocks are rising. When it falls into bear territory, the economy is flailing, unemployment is rising, prices also rise, and asset classes fall. Most experts characterize a bear market as a drop in the market as a whole or an index like the S&P 500 by 20% or more for at least two months.
So where do we stand now? Many market forecasters believe that the economy will slow, the Fed may gradually raise rates to combat inflation, but the S&P 500 will end the year higher than it began the year. In this mix will be more market volatility1.
What Should You Do?
When markets decline, investors become pessimistic and even fearful. They want to do something, anything to stave off losses. If you are a long-term investor, here are some tips to help you successfully manage your investments.
- Develop a Strategy, Implement and Review Annually
It’s important to develop and implement a plan that aligns with your goals, investing time horizon and tolerance for risk. Then you should review your strategy and investment mix annually at a minimum. If you’re not sure about what investments are right for you, schedule a complimentary consultation with one of financial advisors. Visit schoolsfirstfcu.org/advisors.
Contribute a set amount of money to your portfolio each month. Also known as dollar-cost- averaging, this strategy allows you to buy more investment shares when prices are lower and less when prices rise. In this way, you’re building wealth over time and keeping your emotions in check. This can work well when setting money aside for retirement, like an IRA, 401(k), 403(b) or 457(b).
- Keep a Long-Term Perspective
It’s likely that market performance will continue to go up and down this year so don’t focus on short-term volatility but rather your long-term goals. Remember, if you don’t sell anything, the losses in your portfolio are only paper losses.
1. Research Source: Will 2019 Be a Good Year for Investors? The New York Times
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