What Should You Do During a Stock Market Decline?Submitted by Washington Wealth Advisors | Falls Church and Ashburn, VA on February 6th, 2018
By Maura C. Schauss, CFP® and Todd I. Youngdahl, CFP®
The markets took a big dip on Monday, with the DOW in midday trading being off 1,600 points for the first time in a single day. By the close, the Dow was down 1,175 points or 4.6% and the S&P 500 was down 113 points, a little over 4%. The CBOE Volatility Index, which measures fear in the market, saw its biggest one day increase in history. Many investors, especially those close to retirement, are nervous. But what should you do during a market decline?
At times like these, it’s important to put current conditions into perspective. The market is responding to the potential for higher inflation and interest rates, which makes borrowing costlier for companies. And, this is not the first time the market has taken a tumble and it won’t be the last. Declines in the Dow Jones Industrial Average are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average.
There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. Although we’ve all seen market volatility, the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.
Remember That Your Portfolio is Diversified
We understand that volatility and market declines are stressful. However, we encourage you to keep in mind that while the stock market may be down significantly, your portfolio is made up of both stocks, bonds, and other assets that are designed to work together to decrease overall losses. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. If you have questions about your portfolio, get in touch with our office.
Talk to Us
Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third-party. Human nature causes us all to act out of emotion when our accounts go down. As a fiduciary, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that aren’t driven solely by emotion.
We’re Here for Your Friends and Family
If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Having a plan in place helps investors feel more confident and less concerned with the day-to-day market activity.