NEW YORK (AP) — The significant fluctuations affecting Wall Street and the global economy might seem abnormal. However, substantial declines like these have occurred throughout history when it comes to investing.
READ MORE: S&P plummets 6 percent, completing the worst week since COVID as China matches Trump tariffs
Enduring these downturns is a cost that investors must bear to achieve the higher returns that stocks are known to provide over other investments in the long run. Here’s an overview of what’s contributing to the market’s erratic behavior and the advice experts have for both young and seasoned investors:
How serious is the market situation?
The primary benchmark for Wall Street, the S&P 500, has fallen over 16 percent since it reached an all-time high on February 19, primarily due to concerns surrounding President Donald Trump’s tariffs.
Any uncertainty about the economy tends to make Wall Street hesitant, but the trade war complicates matters by affecting the confidence of companies, households, and individuals when it comes to investing, spending, and making long-term plans.
The tariffs introduced on “Liberation Day” caused stocks to plummet, marking the worst trading day since the COVID-19 crash of 2020, as they were more severe than investors had anticipated. There is also fear that Trump may proceed with these tariffs to secure long-term benefits, like boosting domestic manufacturing jobs.
WATCH: Markets tumble following Trump’s new tariffs and rising concerns about a global trade war
Investors had hoped that Trump was using tariffs merely as leverage for negotiations with other nations. Some prominent figures on Wall Street still believe this theory holds, and that a reduction in tariffs could aid stock recovery, though this is now less certain.
Is this type of volatility common for stocks?
It happens relatively frequently. The S&P 500 typically experiences drops of at least 10 percent approximately every year. Often, analysts regard these declines as a necessary correction of excessive optimism that can inflate stock prices.
Prior to this recent downturn, many critics argued that the U.S. stock market had become overvalued due to prices escalating more rapidly than corporate earnings. They noted that a small number of companies were responsible for a disproportionate amount of the market’s gains, with just seven major tech firms contributing to more than half of the S&P 500’s total return last year, according to S&P Dow Jones Indices.
Should I sell my investments?
Experiencing losses can be disheartening for any investor. This particular downturn feels especially unsettling following a prolonged period of market calm. The S&P 500 had just completed two consecutive years of growth exceeding 20 percent, a trend that had not been seen since oversized pants were last fashionable in the late 1990s.
While selling might provide temporary relief, it also crystallizes losses and hinders the potential to earn back that money over time. Historically, the S&P 500 has recovered from every downturn and eventually compensated investors, including after significant events such as the Great Depression, the dot-com crisis, and the 2020 COVID collapse.
Recovery durations can vary, but experts often advise against investing money in stocks that you aren’t prepared to let sit for several years—up to a decade. Funds set aside for emergencies, like home repairs or medical expenses, should remain in safer assets.
“Data has shown, historically, that no one can time the market,” stated Odysseas Papadimitriou, CEO of WalletHub. “No one can consistently determine the best moments to buy and sell.”
Should I adjust my investment strategy?
For a long time, the U.S. stock market has been the unequivocal leader for investments globally. Now, more investors are questioning whether U.S. exceptionalism is coming to an end.
This situation serves as a reminder that diversification often benefits investors, rather than concentrating on a few investments. Years of dominance by the so-called Magnificent Seven have perhaps left many investors less diversified than they realized across both U.S. and international markets.
“It can be tough to handle when it seems like your portfolio is taking a beating,” commented Brian Jacobsen, chief economist at Annex Wealth Management. “However, these situations are typically transient. A diversified strategy that effectively adjusts to changing conditions may not stop the downturns, but it can cushion the impact.”
Phil Battin, CEO of Ambassador Wealth Management, advises investors to ensure they spread their investments across various sectors and geographical regions to mitigate risk. He suggests focusing on “resilient sectors such as consumer staples, utilities, and healthcare, which aren’t as dependent on international trade.”
I’m new to investing in stocks. What should I do?
The rise of online trading platforms and smartphones has ushered in a new era of investors who may be unaccustomed to such volatility.
The good news is that younger investors usually have the advantage of time. With decades to go until retirement, they can afford to weather the market’s ups and downs and allow their stock portfolios time to recover and grow.
Stephen Kates, financial analyst at Bankrate, offers this advice: “Now is not the moment for emotional decisions.” Young investors should “re-anchor to your long-term goals” and consider enlisting a financial advisor for guidance during these uncertain times. “Investors with sufficient time to remain invested should remember how rewarding patience has been over the past 15 years,” Kates remarked.
What if I’m approaching retirement?
Older investors have less time to allow their investments to recover. However, even in retirement, some individuals will need their funds to last 30 years or longer, according to Niladri “Neel” Mukherjee, chief investment officer of TIAA Wealth Management.
Those already retired may consider reducing their spending and withdrawals following significant market downturns since larger withdrawals can diminish future compounding potential. But even retirees, especially in the early stages of retirement, should remain invested in stocks to prepare for potentially lengthy expenditure periods.
“You might want to temper those withdrawals and consider increasing them again once the market rebounds,” Mukherjee suggested, “but it ultimately boils down to discussing this with your advisor and portfolio manager.”
How long will these conditions persist?
No one can say for sure, and don’t let anyone convince you otherwise.
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