U.S. stocks plunged on Monday after a global sell-off, sending investors into a frenzy with recession fears. But it’s not time to worry yet, say financial experts, who point out that declines are normal. And with stocks more expensive than ever recently, buying at what some experts call a discount isn’t a bad idea. While it may seem counterintuitive, buying when prices are falling is an option for those in “accumulation mode” — a term describing the years before retirement — says Catherine Valega, a Massachusetts-based certified financial planner (CFP).
“Yes, yes, yes. Keep buying,” says Valega. “If you have cash left over, it would be great to add more of it to an aggressive, diversified stock portfolio.”
So you can buy a little more if you want. However, now is a good time to actually put into practice all the investment maxims you probably know. Buy And Don’t try to time the market. Maintain dollar cost averaging.
The latter means you shouldn’t change your strategy at all, no matter how the markets perform. If you consistently invest the same amount — for example, withdrawing a paycheck from your 401(k) account every two weeks — there’s no reason to change it, says Andrew Herzog, a Texas-based CFP. Over time, dollar-cost averaging helps investors make more investments at a lower price and fewer investments at a higher price.
“This way you take the emotions out of it,” says Herzog. “It’s a great strategy for the average investor who is investing for the long term.”
For those nervous about investing given the high volatility, Herzog points to recoveries from catastrophic events like World War II, the Great Financial Crisis and the pandemic. And in the case of the recent crash – which brought the biggest drop since 1987 – it’s worth noting that stock prices are still rising this year.
“Historically, how has the S&P 500 performed after 20 of the biggest spikes in market volatility like we’re seeing today? (It) averaged 17.5% the following year,” he says, pointing to this chart put together by Charlie Bilello, chief market strategist at asset management firm Creative Planning. “Short-term losses, long-term gains.”
And if you decide to buy now with some extra cash, don’t dip into your emergency fund, but into any excess funds you may have. If you don’t have an emergency fund, focus on that first – remember that shares could fall even further, so this isn’t a short-term play. Instead, buy only on dips if you plan to hold the stock for the long term.
The bottom line is that there’s no way to predict what will happen next. Stock prices could fall that far, or it could be the start of a deeper correction. For most investors, it’s best to follow a consistent investment strategy through ups and downs. Older investors nearing retirement may consider rebalancing, says Matt Chancey, a Florida-based CFP.
“Markets have always been and will always be cyclical in nature. The goal of buying low and selling high without a defined process of cost averaging or continuous rebalancing is a futile exercise,” says Chancey. “Don’t gamble with your savings.”
And definitely don’t do what this Reddit user suggested: sell now and buy back if you certainly Inventory levels will be even lower. There’s just no way to know.
