Investing headlines have many Americans wondering what's ahead for the stock market. There have been periods of extreme volatility and many investors are experiencing declines in their returns.
Reacting to the gyrations, some jittery investors have pulled out of the market, while the patient ones are waiting for the 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.
Bull or Bear?
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.
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, consider meeting with a professional financial advisor.
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.