Strategies that Work in a Volatile Stock Market
The Dow Jones have suffered a loss in its industrial average of 6.5% in a week through Thursday’s close and the Standard and Poor’s 500 index also dropped to 6.6% over the same period in the volatile stock market. Both indexes however, climbed higher on Early Friday.
Investors, including those who are saving for retirement are in dire fear of what awaits their investments after what seems to be a tumultuous week in the stock market.
The Dow Jones as well as the Standard and Poor’s indexes, which are the two major stock indexes in the market, have both suffered stinging losses. The Dow lost an industrial average of 6.5% and the Standard and Poor’s 500 index suffered 6.6% of losses, both at the same period. However, both indexes started to climb again by Friday of the same week.
According to financial advisors, the basic rule is to ignore the stock’s volatility if your investment is for the long term. If you foresee that you would be needing the money soon, it’s probably not the best for you to invest in the stock market, especially if your financial goals are short term.
Here are some stories from a personal finance team that might help you craft a plan that would serve your individual goals including a timeline of when you would need the money you have invented in stocks in the future.
Ways to Ride a Volatile Stock Market
You probably already know that whatever gains you obtain from the stock market, it is not supposed to last forever. There are dramatic swings as well as drops that are to be expected. Yet, it can still make you very nervous and this volatility can be quite stressful. You should know that steep declines in the average of major stock markets do not necessarily mean that you will suffer dire consequences in the long run. There are things that you can do now to ensure your success.
Those who are nearing retirement have a safe harbor from a volatile stock market. Since retirees couldn’t easily diversify all of the risk in their portfolios, what they can do is to protect some of those savings against rapid spirals from the market. They will need to protect their assets in the short term. If they have invested in those popular funds, they should expect a wild ride.
One of these funds is the target-date fund which gradually moves from investments that pose a lot of risks to options that are more conservative as they approach their retirement age. It is the best choice for those who have 401K savings. However, if you are still nowhere near retirement, you should invest your target-date funds mostly in stocks.
What Not to Do During Stock Market Volatility
While the drastic swings in the market may put the Dow Jones average in a territory of correction, it is not necessarily a sign that the market is healthy according to financial experts. Do not panic right away and try to evaluate your goals both for the short term and the long term.
No matter how nervous you get in the sell-off in the market, it’s not the right time to panic and do sudden shifts in your investment strategy. Pause and take this time to evaluate the allocation of your assets and balance your portfolio again if you have to.
In the middle of a volatile stock market, millennial should keep in mind that stock prices drop are good reminders that the money they may need soon should not be in stocks. Millennial already know that the market sell-off could has once lead to the great recession. But if they are investing for the long term, it is not the same story.
In fact, those who have become 401K millionaires have reached a new high. Their number has greatly increased. Because of the volatile stock market, people who have invested in retirement savings have a lot more to lose. The number of Fidelity 401K savings accounts that have at least a million dollar or more in balances have jumped to a record of 150,000. That number is in the 4th quarter which is an increase from the 93,000 from the previous year.