September has a bad reputation regarding the stock market. Whether this sentiment is rooted in some truth, is a superstition, or becomes a self-fulfilling prophecy, the month makes many investors anxious.
As Barron’s noted, the month is historically the worst for stocks — and according to Dow Jones Market Data, the S&P 500 has averaged a 1.1% decline in September since 1928. Generally, Barron’s added, summer optimism fades in September as investors start looking ahead to the following year, with all its possible pitfalls.
“September is sometimes referred to as the ‘September Effect’ or ‘September Slump,'” said Kendall Meade, certified financial planner at SoFi. “This is because historically there has been a weak stock market during the month of September. No one knows for sure what causes this and it defies market logic. Some theories are that people liquidate their investments to cover costs from the summer, cover costs of sending kids back to school, or lock in gains/losses prior to the end of the year!”
Here are some tips for anxious investors, as well as steps you can take to improve your financial health to close out 2023.
No. 1: Don’t Panic!
Meade said it is of crucial importance to resist the urge to make radical changes to your investments. While a downturn in the economy or a plunge in the stock market can be scary, it is important to make sure we don’t let short-term market fluctuation impact our long-term investing goals (such as retirement), she explained.
“The best thing to do regardless of current market conditions is to make a plan, get invested, and stay invested over the long term,” she said. “In fact, a recession can even be a great opportunity to buy or become more tax efficient by implementing tax loss harvesting strategies.”
No. 2: Pay Down High Interest Debt
According to Meade, this should be a top priority regardless of where we are in an economic cycle. However, doing so is even more important in times of high inflation and economic turbulence.
“One of the costliest pieces of our budget can be high-interest debt payments, so by lowering and eliminating these debts, we can free up cash flow in our budgets, allowing some breathing room,” she said. “Once you have been able to eliminate this debt and lower your monthly expenses, this will allow you to put more money away for an emergency fund.”
No. 3: Don’t Try To Time the Market, Be Patient
Many people think that they can avoid market declines by moving in and out of the market. A mistake many investors make is attempting to time the market, which is “fool’s gold,” according to Robert R. Johnson, PhD, professor of finance at Heider College of Business, Creighton University.
“None other than Vanguard founder Jack Bogle is quoted as saying on market timing — ‘After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently,'” said Johnson.
Joe Camberato, CEO of NationalBusinessCapital.com, echoed the above, saying first and foremost, remember that patience is a virtue in the world of investing.
“Sometimes the best action is to do nothing, and wait for the right opportunity. As Warren Buffett once said: ‘Rule No. 1 is never lose money, and rule No. 2 is never forget rule No.1,” he added.
According to Camberato, if you currently have funds parked in CDs and Treasury bills, then hang tight and continue collecting interest.
“When the market shows signs of a positive turn, that might be the time to consider shifting from these safer, yielding options back into equities. But, as always, be patient,” he added.
No. 4: Keep Perspective and Take a Break
Downturns are normal, even expected. On average, since 1926, stock prices have dipped about every six years or so, per Maya Sudhakaran, head of growth and acquisition at investing app Plynk.
“But in the long run the market has recovered each time, reaching new heights,” she stated.
She added that investors should invest consistently — and if you find yourself stressed, anxious, or constantly checking in on how your investments are doing, consider taking a break.
“Like watching water boil, watching your investments rise and fall isn’t the best use of time,” she said. “Instead, do something else that you enjoy and let your portfolio do the work for you! When it feels like there’s nowhere to find money to invest in your budget, get creative!”
No. 5: Beef Up Your Emergency Fund
Having an emergency fund of three to six months of living expenses is a must, said Michael Collins, CFA, founder and CEO of WinCap Financial. “This can be used in times of market downturns, to avoid having to liquidate investments in a panic.”
No. 6: Take a Sabbatical From Your Investments and Focus on Other Aspects of Your Finances
Anxious investors should enjoy a September sabbatical from their investments and focus their energy on areas of their financial life they can control — such as spending habits and savings — said Kelly Palmer, CFA, founder and chief wealth officer of The Wealthy Parent.
“September can be a great time to focus on your cash strategy, especially if stocks bring about anxiety,” said Palmer. “Look to open a high-yield savings account or do an analysis of your emergency fund to make progress in your financial plan.”
No. 7: Consider Exchange-Traded Funds (ETFs), High-Yield Savings Accounts (HYSAs) and Certificates of Deposit (CDs)
Collins recommended opening a HYSA, which will earn you a higher interest rate than a regular savings account and is a great place to store your emergency fund.
In addition, he said that purchasing CDs is a great way to protect your investments from market volatility. They are guaranteed by the FDIC and offer no risk of principal loss.
Finally, invest in stocks and ETFs.
“While stock and ETF investments can be risky in September, it is important to diversify your portfolio. Investing in a variety of stocks and ETFs can help protect you from major losses,” he added.
No. 8: Just Weather the Storm
Wait it out. If the market drops significantly, it is best to wait out the storm, said Collins.
“Avoid making investments in a panic and take a wait-and-see approach,” he added.
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