As S&P Corrects, Long-Term Investors Should Look at Down Days as Sales
If you’ve been watching the stock market, including the pivotal S&P 500 index and the Dow Jones Industrial Average, you may be sweating as you watch your portfolio’s bottom line dwindle. But expert analysts say you should wipe that brow and free up funds to invest now.
“Big down days are like buying on sale,” Dominic Chu, senior markets correspondent for CNBC, said in an article published by investing app Acorns.
Thursday brought dips to all three major stock indices. The Dow was down 859 points at its low point, Nasdaq lost 3.5%, and the S&P 500 dropped 2.6%. All three ended the day slightly up, but the Nasdaq and S&P 500 were still in what the experts call “correction territory,” 10% below recent highs, Acorns reported.
Wars typically mean gains for the stock market. In the four most recent worldwide conflicts, spanning from World War II to the Gulf War, the market showed an 11.4% annual return, higher than the average long-term return.
However, right now the market is suffering due to a wider variety of factors, including inflation pressures that started before the conflict and the Fed’s intentions to raise interest rates soon. Rising oil prices, in the wake of other pandemic-related supply chain challenges, are also affecting the market.
“The main intersection of a conflict like this and investments is through oil and other commodity prices,” said Michael Santoli, CNBC senior markets commentator. “They are up and at levels that will continue to support higher inflation, which is already pressuring U.S. consumers and leading the Federal Reserve to raise interest rates soon.”
However, Santoli implied he isn’t as concerned about rising oil prices right now and these rates are definitely not unprecedented. Oil was above $100 a barrel through most of 2011 through 2014, he said.
“Today consumer incomes are much higher and consumer debt burdens lower, so the impact shouldn’t throw our economy off course,” he told Acorns.
For retail investors who are looking at long-term growth, Chu recommends “dollar-cost averaging,” or buying shares of your favored companies while they are low to reduce your overall buying price. However, he pointed out, “Navigating market volatility is all about knowing your risk appetite and time horizons.”
If you’re close to retirement, for instance, you’ll want to continue adding funds to more stable accounts such as your 401(k) or IRA. And if you’re saving for a short-term purchase, such as a down payment on a house, a new car, college tuition or a vacation, consider a short-term investment like a bank savings account or a six-month CD.
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