Oct 25, 2018
Yes, The Stock Market is Volatile. No, Don’t Freak Out
By Stash Team
Remember the Stash Way before you panic about volatility in the market.
The U.S. stock market bounced back into action on Thursday, following a sell-off on Wednesday that eliminated gains for most of the year.
The Dow Jones Industrial Average increased 1.5%, after tumbling 608 points the previous day, and the S&P 500 gained 1.7% by mid-day Thursday, October 25, following decreases of more than 8% from their respective and recent all-time highs.
These fluctuations are a normal part of how markets work. Read on and we’ll tell you all about it.
What sent shares up on Thursday?
Positive earnings reports from Ford, Microsoft, Twitter, and Visa sent shares up on the Dow, S&P 500, and Nasdaq.
How to cope with volatility
When markets fall, the temptation might be to sell your holdings. We get it. Losing money is no fun. But selling when markets drop is the wrong thing to do. You could end up locking in your losses.
By buying and holding onto your position, and even adding to it as stock prices go down, you have the potential for more gains over time if you can handle the volatility in your portfolio.
You can also adjust your portfolio to invest more in bonds. Bonds have their own risks, including being subject to interest rate increases and inflation. But in addition to being a good way to diversify your portfolio, bonds are generally considered safer than stocks as their performance tends not to move in tandem with equities.
For example, when stocks go down, bond prices tend to increase, particularly when the economy is entering a recession. You should never panic as there is a relatively simple way to reduce the volatility of your portfolio–just allocate more of your portfolio holdings to bonds.
Some bonds, such as U.S. Treasuries, are considered among the least risky investments.
Don’t try to time the market
Remember, trying to predict which way the market is heading is called market timing. It’s when you try to make guesses, often with incomplete or incorrect information, about whether markets will go up or down, and then buy or sell according to whether you think your investments will make or lose money.
Over time, various studies show investors who try to time the market tend to lose money relative to those who just buy and hold diversified portfolios.
Why did stocks fall before?
- Interest rates for benchmark bonds such as the 10 year U.S. Treasury continue to trend higher. This could make it more expensive for businesses and consumers to borrow.
- Corporate earnings have shown some weakness, which might indicate the economy could be slowing.
- More recently, concerns about the trade war with China increasing costs for U.S. businesses has also been a factor. China, the second largest economy in the world, is also one of the big purchasers of U.S. products, and China’s economy has slowed.
- Geopolitical concerns around Italy and recent turmoil in Saudi Arabia have an impact. These types of risks based on political events can make markets nervous.
Look to The Stash Way
We’ve boiled down our investing philosophy into three basic principles that we call the Stash Way:
- Invest for the long-term
- Invest regularly
Over the years, market gains have outpaced standard savings rates in bank accounts. Over time, markets tend to rise. From 1928 through the end of 2017, the S&P 500 had an annual return of 9.65%. Going forward, experts predict its returns will be closer to 5.5%.
With the power of compounding and regular investing, a well as purchasing a wide variety of stocks, bonds, funds, and other securities, you have the ability to build wealth for the financial future you want.
That said, all investing carries risk, and it’s important to know that you can also lose money in your investments. Keep reading Stash Learn so you stay in the know and don’t let emotions guide your decisions.
Keep calm, keep Stashing
Stash lets you start investing for as little as $5. You can buy select single stocks and ETFs on the Stash platform, which can help you build a diversified portfolio. Turn on Auto-Stash, take a deep breath and keep Stashing.
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1 See the historical data on the S&P 500 provided by http://pages.stern.nyu.edu/~adamodar/
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