Markets have become increasingly volatile over the past week, culminating with the Dow taking a 1,000 point dive this morning just seconds after the opening bell. The market has since regained some of its losses, but with this morning’s activity reminiscent of the 2008 financial crisis, investors have remained understandably concerned. Market jitters appear to stem from concerns of a global economic slowdown (largely due to China and emerging markets), a general lack of recent economic data (creating a bit of a news vacuum), falling commodity prices, continuing political instability in Greece and uncertainty over the timing of Federal Reserve rate hikes.
So what does this all mean?
If you are a long term investor in 100% stocks then you know that this selloff is the downside to an aggressive portfolio. But, with a lengthy time-frame a little buying into the selloff here is likely a good idea. Likewise, for those with 401k’s or IRA’s making regular salary deferrals or elective contributions, you may be looking at an opportunity to take ownership of much more for much less and benefit from the dollar cost averaging effect when the market rebounds. It can also be an opportunity for those with cash to gradually work their way into the market – many have been waiting for some time to catch this break. And for those with traditional investment accounts or retirees with rollover IRA’s, it’s an opportunity to rebalance allocations to your advantage. A 65/35 stock to bond portfolio that’s drifted down to 60/40 can be rebalanced back up to 65/35 to capture the swing. The last thing to do is panic and sell. Market declines like these are why we talk about risk tolerance and invest accordingly, protecting your assets from declines that would otherwise affect your personal well-being and lifestyle.
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