When Markets Go Haywire
Investors can be forgiven for feeling queasy after Wall Street’s latest rollercoaster ride, said Ron Lieber in The New York Times. Alas, all this seesawing “is what markets do.” And though your first impulse when stocks take a tumble might be to do something—anything at all—most experts will tell you to take a few deep breaths, and then sit tight. Odds are you’re still a big winner if you’ve invested in the stock market over the past six years. Unless your financial goals have changed in the past few weeks, “it probably doesn’t make much sense to overhaul an investment strategy based on a blip of market activity.”
You definitely shouldn’t sell, but you shouldn’t buy, either, said Jordan Weissmann in Slate.com. If friends tell you a sell-off is an amazing time to load up on stocks like Apple, “you should ignore them.” Yes, the market usually rebounds. Since 1980, the Standard & Poor’s 500 has fallen 5 percent or more in a week on 28 other occasions. Seventy percent of the time, stocks rose over the next three months after those losses. But it doesn’t always happen that way. After big downturns in 1987 and 2008, stocks kept falling, sometimes by 20 percent or more. The point is, you don’t know how to time the market. No one does.
A better strategy: “Check your portfolio less often,” said Justin Wolfers in The New York Times. Psychologists have found that we feel the effect of stock losses roughly twice as much as we do a similar-size gain. Since the S&P 500 index was created in 1957, it has fallen on 46.7 percent of all trading days. But if you peeked at your returns just once a month, history shows us, you’d “realize losses only 40.4 percent of the time.” Check just at the end of each year instead, and you’ll have dealt with losses only 27.6 percent of the time. Not only will you be less stressed, “it may lead you to make better financial decisions.”
The truth is, most people aren’t affected by these dramatic market hiccups, said Allan Sloan in The Washington Post. Federal Reserve statistics show 93 percent of U.S. households own less than $27,000 of stocks directly, and only about a quarter of households own more than $36,000 of stock in their retirement accounts. For most of us, the state of the “real economy” is what matters, said Marilyn Geewax in NPR.org. Consumer confidence is up, the federal government’s deficit is shrinking, and the economy grew faster than expected last quarter. Good news is out there, “if you can ignore the shrieks of stock traders.”
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