Recently, the stock market has been all over the place, and that has many people worried about their money. As prices go up and down, it’s important to know what’s happening and how you can make sure that stock market volatility doesn’t knock you off track.
The recent fluctuations in the stock market may have been driven by several factors. For instance, news of better-than-expected corporate earnings and steady economic data recently pushed stock prices higher. However, other news, such as concerns about inflation and geopolitical uncertainty, may have caused prices to drop as investors became more cautious. These ups and downs are normal but can feel unsettling.
Even if you don’t own stocks, market fluctuations can still impact you in various ways:
• Impact on Home Buying: Stock market volatility can influence mortgage rates. When the market is unstable, central banks might adjust interest rates to stabilize the economy, which can affect the cost of borrowing. Higher mortgage rates could make home buying more expensive, impacting your ability to purchase a home or impacting the terms of your mortgage.
• Effect on Employment: Often stock market fluctuations coincide with economic slowdowns. As the economy slows, employers may cut jobs or slow hiring. A volatile stock market may then impact business sentiment which can exacerbate problems in the labor market.
• Understanding Market Crashes: For many people, the concept of a market crash can be confusing. A market crash typically refers to a sudden, sharp decline in stock prices. While it might feel alarming, it doesn’t directly affect everyone’s daily life. For those without stock investments, the impact is less immediate but can still influence broader economic factors like job markets and interest rates.
While this environment may be scary, there are some simple steps you can take to stay on track:
1. Stay Calm and Informed
First, try to keep calm. Follow trustworthy news sources to understand what’s going on, but don’t make quick decisions based on day-to-day changes. Acting on emotion can often lead to bad choices.
2. Spread Out Your Investments
Don’t put all your money in one place. By investing in different asset classes like stocks, bonds, and cash, you can reduce the risk of losing everything if one area performs poorly. This is called diversification and it helps balance your investments. Determining an appropriate asset allocation is a key step when deciding how to invest.
3. Think Long-Term
Remember why you’re saving and investing, and know your time horizon. Whether it’s for your retirement, your kids’ education, or a future home, keep your long-term goals in mind. The stock market goes up and down, but over time, it tends to be a wealth creator.
4. Invest Regularly
Instead of investing a large sum at once, consider putting in a smaller amount on a regular basis. This way, you reduce the chance of buying at exactly the wrong time—by buying over time, investors tend to buy more shares when stocks are down and fewer when they are up, which can help even things out. This strategy is known as dollar-cost averaging.
5. Get Professional Advice
If you’re unsure about what to do, talk to a financial advisor. A good advisor can guide you and help you make decisions that are right for your situation and goals, seeking to maximize the chances of meeting your objectives.
I started my firm over 20 years ago with my first client, a single mother who wanted to secure her children’s future. Today, TLWM Financial manages over $600 million in assets. Our success is built on trust, careful planning, and sticking to these simple principles.
During these unpredictable times, staying calm, diversifying, thinking about the long-term, investing regularly, and seeking professional advice can help you make good decisions and achieve your financial goals.
Enzo Pellegrino is the CEO and Founder of TLWM Financial. With over 20 years of experience, he has been named one of the top 25 wealth managers in South Texas by Forbes.
