The U.S. stock market recently entered correction territory – dropping about 10% – for the first time in two years. The increased market volatility continues to rattle investors. What is causing the market decline and what should you do about it? Here are 8 tips for your investment strategy.
WHAT IS CAUSING RECENT MARKET VOLATILITY?
- Investor Sentiment: over-reaction leads to more selling and downward pressure.
- Inflammatory headlines: for example, “crash, panic, cratered, largest point decline in history”
- Increasing inflation pressure.
- Rising interest rates.
THE STOCK MARKET HAS BEEN LOOKING A LITTLE PRICEY, IS THERE SUCH A THING AS A “HEALTHY CORRECTION?”
Absolutely!
- High stock valuations adjust to more reasonable levels.
- Over-eager investor sentiment gets a reality check.
DOES THE DOWNTURN CONCERN YOU?
Not particularly:
- Economic and Corporate growth remain strong.
- Declines are common. 10% corrections have occurred in two-thirds of years since 1979.
- Pullbacks are likely to be temporary. Just look at history.
WHAT TIPS DO YOU HAVE FOR INVESTORS?
- Have a game plan.
- Stay globally diversified
- Know what you own and why you own it.
- Be patient.
- Rebalance back to target allocations.
- Stay the course unless your financial situation has changed.
- Play defense: Do you need to increase defensive assets such as cash or short-term bonds?
- Continue to save. Remember the time-tested wisdom of “buy (rebalance) low, sell (rebalance) high.”
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