By Jacob Passy
It’s Freaky Friday on Wall Street for investors.
The latest tumble in stocks is, in many ways, a replay of what investors have seen with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.75% , the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.58% and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.26% in recent months — another major disruption to global stock markets.
U.S. stock markets are sharply down on Friday. The latest stock-market turmoil has come as markets have attempted to recalibrate amid policy changes at the Federal Reserve, record-high levels of inflation.
Investors are spooked by hawkish comments on interest rates by Federal Reserve Chairman Jerome Powell a day earlier, in addition to a fresh batch of corporate earnings that largely disappointed.
Powell told an International Monetary Fund panel on Thursday that tempering inflation is “absolutely essential.” On the prospect of the Fed’s next rate hike, he added, “I would say 50 basis points will be on the table for the May meeting.”
It’s clear that the recent spate of market weakness has unsettled many investors, with many pulling money out of the stock market and buying gold . Among the most popular searches on Google in recent weeks have been questions like “Is the market going to crash?”
Financial experts advise staying cool. Russia’s invasion of Ukraine has also rattled global markets. As Pepperstone’s head of research, Chris Weston, recently wrote , “Trading in a headline-driven market is not for everyone, it requires a dedication to being in front of the screens, an understanding of what is noise and what is signal and an ability to keep emotions in check.”
“Volatility and corrections are a normal part of investing in the markets,” added Greg McBride, chief financial analyst at Bankrate.com.
“With interest rates poised to rise this year and the Fed tightening what has been very loose accommodation for the economy and markets, the returns won’t come as easy as they have in the past 18 months or so,” he added.
MarketWatch polled financial experts to see what advice they had for Americans nervously checking the status of the IRAs and Robinhood /zigman2/quotes/228268942/composite HOOD +4.93% accounts. Here are their top tips on what to do in this latest downturn:
Take a lesson from March 2020
The most important advice, according to McBride, is literally to do nothing, and don’t panic. And here’s far from the only financial expert to suggest that.
“Typically in situations where the stock market is in a slump or where it’s behaving erratically, the best course of action is often to just leave your money where it’s at,” said Jacob Channel, senior economic analyst at LendingTree /zigman2/quotes/204207971/composite TREE -0.09% .
Never sell in a loss. For people who are invested in index funds or stable companies, in all likelihood, their investments will rebound.
Don’t believe him? Recent history should offer some comfort. The markets fell sharply at the start of the COVID-19 pandemic amid fears of a prolonged recession. They didn’t stay low for long, though.
“Following that sell-off, the market rebounded spectacularly and the S&P 500 is currently sitting at a near record high — even when taking into account its recent decline,” Channel said.
Review your investment plan
For most investors, the money they have in the market — either through retirement accounts or individual investments — is intended for long-term purposes. So short-term fluctuations shouldn’t change one’s strategy a whole lot.
Still, financial experts said this is a good time to review things to make sure your money is working for you. Multiple financial planners suggested rebalancing your portfolio.
“A market downturn is a great opportunity to look at your investments to see if they still reflect your target allocation,” said David Haas, president of Cereus Financial Advisors in New Jersey.
It’s natural to see your portfolio allocation drift when stocks are falling and bonds are rising. Getting back on target is key. Doing this means you’ll be selling what’s high and buying what’s low, said Mark Ziety, executive director of WisMed Financial, an advisory firm based in Wisconsin.
Similarly, now is a good time to review the diversity of one’s portfolio. Are you too geared toward growth funds? Do you have exposure to emerging markets?
Now might also be the time to do a Roth conversion, if that was something you were interested in, Ziety said. “When markets are down, more shares can be converted from pretax to tax free for the same tax cost,” he noted.
Put your cash to work
A common aphorism among financial whizzes is to buy the dip. In other words, think of the stock market being discounted right now.
“Depending on your age and time horizon, this may be a time to buy into the market while it is on sale,” said Charles B. Sachs, director of planning and chief compliance officer at Kaufman Rossin Wealth, a national accounting and investment advisory firm.
On the upside, there is no sign of panic selling activity, despite the stock market’s biggest drop off in seven weeks on Friday , according to the Arms Index that tracks market internals.
If you have extra money that you can invest, do not sweat the timing too much.
“You likely won’t catch the market at its best rock-bottom price, so if you want to invest during a downturn, waiting for the ‘perfect moment’ may not be the best strategy,” said Alana Benson, investing spokesperson at personal-finance website NerdWallet.