“What goes up must come down. Spinning wheel got to go round.”
This year’s market calls to mind those classic lyrics from the group Blood, Sweat, and Tears — all things that have clearly been shed in 2016!
It’s been quite a rollercoaster ride that has many investors worrying uncontrollably about the future. Yet, as I point out to younger investors in particular, major downturns like we’ve seen also present buying opportunities.
This year’s stock market got off to one of the worst starts in the history. Yet although January and February disappointed, the Standard & Poor’s 500 Index gained 6.8 percent in March, its best performance in the third month of the year since the current bull market rally began seven years ago in March 2009. Then after an impressive recovery, we saw another major bout of turbulence post-Brexit. At one point, the Dow Jones Industrial Average was down over 650 points. Then, two weeks later, that pain was a distant memory as markets not only recovered, but surpassed where they had been in mid-June. Talk about ups and downs.
This year’s market history illustrates that there is a good side to bad markets. After all, who doesn’t like a sale? Especially when, unlike when the retail stores clear out inventory, the same bargain stocks will be priced higher in the future.
Here are some key points to keep in mind to take advantage of a down market:
- Maintain a long-term perspective; don’t let the market’s daily gyrations get to you. If you are saving for goals decades down the road like retirement and you invest regularly every month or quarter, these downturns mean that you are buying more shares than you would if the market was chugging along in positive territory. Over time, this can give a little extra boost to your overall return.
- Re-evaluate your current portfolio to ensure your current risk level is appropriate. This is especially important if you are retired or a few years from retirement. Of course, the ideal time to adjust your portfolio is when your goals change. You should discuss with your advisor the pros and cons and making a change to your portfolio during a down market.
- Don’t try and time the market. Market timing rarely works.
Downward plunges can be scary. It can be a real challenge to maintain your discipline and stick with your investment plan. However, it’s more than likely that you will ultimately look back on these temporary declines and be glad that you were a buyer, not a seller.