It’s back again, a scary stock market.
For most investors, though (not day traders), a bit of sensible advice is also back again: Hang on.
Yes, taking a profit in some of your holdings makes sense instead of riding them all the way down — if down it is. But don’t jump out of the market with all you’ve got. Don’t jump all in, either.
Smallish, steady purchasing over time is the way to go.
This means accumulating a variety of good stocks, or stock mutual funds, at lower prices as they fall without trying to “time” the market. Down or up, either way seems to come as a surprise in these days of “volatility.” Stock prices could end the year higher on average (there are always exceptions), and experts will say they told you so. Or lower. The reasons will be perfectly clear in rear-view mirrors.
Hanging on, sticking with a long-term investing horizon — in a 401(k) or other retirement plan, say — makes the most sense for most.
But what daily temptations to jump one way or the other from this moving vehicle.
On (Oct. 15), the Dow Jones industrial average of 30 major-company stocks plunged 460 points before recovering to close down 173 points — its fifth-consecutive losing session. The day’s performance underscored the market’s recent wild swings.
A 115-point drop on Friday and 223 points on Monday dunked the Dow below where it started the year. A week ago on Oct. 8, the index soared 275 points, retracing the previous session’s loss. That was its best daily gain of the year, by golly. Then on Thursday erased all of Wednesday’s gains and more, falling 334 points. Worst loss of the year.
The Russell index of 2,000 smaller company stocks has fallen harder of late, off more than 10 percent since July, a market “correction” for sure.
What does all this tell you about what your nest egg will do tomorrow? Practically nothing.
Yes, it implies a guess that the economy, the world economy in fact, faces slowdown. And that a stock market in record territory, with a Dow that topped 17,000, was anticipating too much good news.
After all, on the negative side, business, though still enjoying profits, braces for rampaging costs for health care and environmental regulation. There’s a “war on coal,” regulatory hindrances and a level of corporate taxation that tempts firms to incorporate overseas. Add the ISIS war in the Middle East and a media, academic and political obsession with the “income gap” that could raise labor costs throughout the economy, starting with the minimum wage. Plus this deadly wild card, Ebola.
On the positive side, manufacturing is reviving, falling oil prices give millions of consumers more money to spend, and unemployment is coming down. The Federal Reserve keeps interest rates near zero, enabling the government to finance our disgraceful $17 trillion national debt. Cheated out of a fair return on their thrift, instinctive savers have to stick with stocks; they pay dividends.
In short, a mixture of good and bad. No obvious harbinger of disaster, but we were overdue for this correction.