WHATS GOING ON WITH THE MARKETS THESE DAYS?
In the past few weeks, the markets have sent investors on a bumpy ride. Last week, the S&P 500 and the Dow both fell a little over 4 percent. This week they recovered some of the losses. These ups and downs amid otherwise good economic news can make people nervous.
Many may be wondering if it is the end of the longest bull market in history. In periods like this, some investors may be tempted to head for the exits.
WHAT IS CAUSING THIS VOLATILITY?
There are a few reasons we are seeing some angst on Wall Street in recent days. First, the interest rates are causing some investors to lose their nerve. As the Federal Reserve continues to raise rates, some worry that this could have a cooling effect on the economy by driving up borrowing costs for consumers and companies.
On top of that, the reality of the trade tensions is setting in. The costs of the Trump administration’s tariffs are starting to settle in the minds of many investors. Tariffs drive up costs and complicate supply chains, hurting businesses and consumers alike. Wall Street has taken notice.
Finally, recent good news on the economic front may actually be making some investors nervous. With consumer confidence high, unemployment low and GDP growth beating expectation, it is easy for some to get carried away. This is not to say we should be expecting an end to the bull run – no one can time the market – but it does cause some investors to exercise caution.
KNOWING THAT, WHAT SHOULD WE KEEP IN MIND?
There are two big mistakes that people make in times of volatility. The first is to get anxious. For most of us, while our retirement is still far off in the horizon, it is easy to think about what is happening with our savings today. You have to resist the urge to run for the exits in times of volatility. On the flip side, you also want to resist the urge to try to time the markets. Individual investors get burned in periods of instability when they try to be one step ahead of the markets. This is a recipe for bad results.
SO WHAT SHOULD WE BE DOING?
The best thing you can do is to continue to make contributions to your retirement accounts! If you keep in mind that you are investing for the long-term, falling stock prices mean that the money you contribute today is buying more than it was at the beginning of the week, and that is a good thing.
Taken in that perspective, it is easier to remember that retirement is a marathon, not a sprint. If you are still anxious about the market volatility, reach out to your financial advisor or the people who oversees your 401(k) program and ask them about your investments, making sure they are allocated for your age, and for the current climate. They can help you calibrate the risk and diversity of your investments, and give you some peace of mind.
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Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.