While volatility can be troubling for investors, financial experts caution against making any rash decisions when markets fall. Volatility can lead to opportunities to buy more of your favorite stocks and set yourself up for future gains.
Expect and accept volatility
You, as an investor, should accept market volatility — which is relatively common — as a normal part of the process of investing and the best way to outrun inflation, said certified financial planner Brad Lineberger, president of Carlsbad, California-based Seaside Wealth Management. “Embrace the volatility, because it’s why investors are getting paid to own stocks,” he said.
This means you should stay calm even through extreme movements. While stocks always move up and down, long-term market returns are still based on the same things: dividend yields, earnings growth and change in valuation, according to Zach Abrams, a CFP and manager of wealth management at Shaker Heights, Ohio-based Capital Advisors.
investors should worry about Jerome H. Powell, chair of the Federal Reserve. The Fed raised interest rates by a quarter percentage point in March for the first time since 2018 and projected six more increases this year.
“The market reaction in the past four to six weeks can almost all be attributed to the Fed and how interest rates have moved,” Mr. McMillan added. “There’s been very little response to events in Ukraine.”
Investors haven’t fully appreciated what rising interest rates mean for the stocks in the financial sector, especially banks and insurance companies, which have suffered from a prolonged stretch of near-zero interest rates, said Andy Kapyrin, the co-chief investment officer of RegentAtlantic. “The market hasn’t yet priced in the benefits financial stocks are going to see from higher interest rates,” he said. “Banks in particular can make a much higher interest-rate margin as short-term rates rise.”
Stocks that could suffer from higher rates include shares of small, emerging software and e-commerce companies and other capital-intensive tech firms that have depended on borrowing heavily at low rates until they can turn profitable, Mr. Kapyrin said.
Individual investors should maintain a long-term horizon even in retirement, which can last 30 years or more, said Simeon Hyman, a global investment strategist at ProShares. That means ignoring stock plays based on temporary upheavals.
“Historically, downturns in the equities market from major geopolitical events are fairly short-lived,” Mr. Hyman said. “If you look at what happened after 9/11, the global pandemic or the invasion of Kuwait, the downturns were measured in weeks or a couple of months.”
References:
- https://www.cnbc.com/2022/05/05/stocks-are-tumbling-heres-what-to-keep-in-mind-.html
- http://www.capstonefinancialga.com.advisor.news/staying-the-course-may-be-the-key-to-wartime-investing/