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The stock market is off to a rocky start this year. The S&P 500 Index is currently down more than 16% year-to-date through Monday’s close.
That has sparked concern from some investors. About 43% said they are too nervous to invest in the market right now, according to Allianz Life’s Quarterly Market Perceptions study, an online survey of more than 1,000 adults conducted in March.
That’s an increase of nearly 10 percentage points from the previous quarter, the survey found. Additionally, more than half of those surveyed are concerned about a market downturn and 81% expect volatility to continue in the market this year.
“People don’t like uncertainty when it comes to finances and that’s exactly what we’ve experienced in the markets so far in 2022,” Kelly LaVigne, vice president of consumer insights at Allianz Life, said in a statement.
Even amid market volatility and uncertainty ahead, financial experts advise that people, especially investors with long-term horizons, continue to put money into the stock market.
“Consistency in life and in investing is a really critical element of building wealth,” said certified financial planner Diahann Lassus, CEO of Peapack Private Wealth Management in New Providence, New Jersey.
Dollar Cost Average
If you’re investing for retirement in a 401(k) plan, you should continue to put the same amount into the markets or average the dollar cost of your investment.
“You have to be able to do that up and down, that’s literally how you compound,” said Douglas Boneparth, CFP, president of Bone Fide Wealth in New York. “This is how the game is won.”
Continuing to buy when markets are down is also where investors can find opportunities for stocks poised to rise, he said.
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“Effectively, you’re buying things at a discount,” said Lee Baker, CFP, founder of Apex Financial Services in Atlanta, adding that having discipline in today’s market is like a parent telling you to eat vegetables as a child.
“Broccoli doesn’t taste as good when we’re younger, or carrots, but it’s good for you and pays off in the long run in the form of strong bones,” he said. With investing, the payoff is a solid retirement account when you’re ready to leave work, she said.
Rebalance if necessary
If the market crash is keeping you up at night, it may be a good time to rebalance the assets in your portfolio.
“If you ended up 80% in stocks and that’s really giving you an ulcer, then maybe it’s time to revisit that exposure,” Lassus said, adding that the markets may have already done the work for you.
He also suggested rotating money from winners, stocks that have performed well, to those that have lost value. Although it can be difficult to sell to your high performers, the discipline of selling high and buying low will come in handy over time.
Baker agreed, adding that for some investors, the typical 60% stock, 40% bond portfolio may no longer make sense.
“Maybe they really need to be 50-50 or 40-60,” Baker said.
Have cash reserves ready
Of course, a stock market crash can be especially stressful for those who are retired or near retirement.
To avoid selling losing assets to break even, financial experts recommend having a solid emergency fund of cash on hand. This acts as a buffer so you can keep the assets on the market to recover rather than sell them when prices drop.
“Even if you’re in your 60s or 70s, with today’s life expectancy, you’re still investing long-term to keep up with inflation,” Lassus said, adding that if he hopes to leave money for his family down the road, the long-term investment is even more important.
Refocus on your plan
One thing that can help investors disconnect from the daily cycle of volatile markets is to review their long-term financial plan and track where they are with their goals, Lassus said.
Remember that volatility is something to expect for long-term investors, and today’s turmoil comes after roughly two years of strong market returns.
“It’s much easier to do well by investing money and be disciplined when the markets are up,” Boneparth said. “It’s getting harder and harder to maintain that discipline when the going gets tough.”
At such times, having a plan and being able to execute your strategy is critically important, he said.
“If you find yourself lost here, it’s probably due to a lack of a plan,” he said.
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