Although individual situations may vary, the average retirement saver should stay the course, say experts, but safe investments are also available in the stock market if you’re willing to risk riding the ups and downs of the stock market. You can make a safe investment if you cannot afford it.
- While it’s tempting to dump stocks whenever the market is down, some experts say it’s usually a bad move for a typical retirement saver.
- Stocks generally give you a better return over the long term than other types of assets, although they may not have any bearish effect even if you are planning for a long time.
- If you sell stocks during a downtrend, you will lose a large portion of the gains you would have received if the market corrected.
- For some conservative investors, CDs, Treasury, and money market accounts are low-risk places to park your money.
We have no doubt that the stock market has won this year. As of October 3, the S&P 500 stock index was down 23% from the beginning of the year, which gives individual investors quite a tough fight. If you are saving for retirement, your account has probably been hammered, especially if you still have decades until you retire. (Retirement investors tend to focus less on stocks as they approach retirement, while younger ones may have accounts that are heavily weighted toward stocks.)
The company said in a report in August that by the end of the second quarter of the current year 2022, the average Fidelity 401(k) value would have been less than 20% lower over the previous 12 months.
The stock market has generally declined due to frequent Federal Reserve interest rate hikes, the real purpose of which is to slow the economy and try to quell inflation by making money harder to borrow. This means that consumers cannot borrow for large-ticket purchases, and businesses cannot borrow to invest in their businesses. which in turn affects the profitability of companies, all of which drag down stock market prices and financial markets.
Note: The slowdown in global growth and a lower earnings outlook have also contributed to the stock market sell-off whenever rates are hiked by central banks in some other countries.
If you have hurt your portfolio that much, it may be tempting for you to cut your losses and exit the stock market altogether. But retirement experts say that could be a mistake.
“Many families are visiting Fidelity Investor Centers, terrified of recent stock market volatility,” said Jennifer Sirois, vice president and branch leader at Fidelity Investments in Nashua, New Hampshire.
“We generally advise all investors to never take their money out of the stock market,” Jennifer Sirois said in an email. “Markets are volatile, so it is usually the best advice for investors to stick with the investment.” After all, whether it is a human or going to the market, it is up to you.
Why It Pays To Be Patient
There’s one biggest downside to exiting the stock market: you could miss out on the profits and compounding earnings that you’ll get when the market goes up again, experts say. For example, let’s say you bought XYZ stock for $50, and its price in the current market is over 20% lower at $40. If you sell now, you will lose $10 in stock. However, if you wait a little longer and the stock price rises to $65, you’ll earn a 30% return on your initial investment.
The most important thing to understand is that most people cannot successfully time the stock markets, not even some experienced traders. On the long-term investment horizon, your best bet is usually to allow your investments to weather significant volatility.
Lauren Wieber, the senior financial advisor at Vanguard Personal Advisor Services, said, “Vanguard believes that maintaining a low-cost, diversified portfolio is built to withstand market volatility and best protect itself during market downturns. Nice way.” “When investors give up on stocks, they may miss out on the general market’s recovery and moving power.
In fact, the majority of retirees save for their retirement over a lengthy period of time—more than 10 years—and the traditional wisdom is to disregard ups and downs because equities typically bounce back and offer higher returns than many other investments. longer than necessary. According to the Schwab Center for Financial Research’s historical examination of the S&P 500, the typical bull market during the past 50 years lasted around six years and had an average cumulative return of more than 2000%. The average bear market, on the other hand, only lasted 15 months on average and resulted in a loss of 38.4% overall.
However, there are strategies that can reduce the negative effects of a stock market meltdown for risk-averse investors. Sirois claimed that one alternative is to increase the percentage of bonds in the investment portfolio because when the market declines or equities have historically declined, they are less volatile than those aiming for low volatility. Defensive stocks are those that are more adaptable than larger markets, and they can be found in industries like consumer goods, utilities, or healthcare.
There are safer options accessible for individuals who have the capital to invest. According to Sirois, these include treasuries, money markets, and CDs.
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