When the stock market drops as it has this week, both the Times’ Ron Lieber and the Post’s Michelle Singletary quickly move to ease readers’ fears and advise against panic selling.
Your aim as an investor, says Lieber: "is to find a way to put your money in an investment that will grow over time at a rate that outpaces inflation. And you want to do that without taking on so much risk that it could all go to zero and stay there.
"Owning a big basket of stocks and paying very little for the privilege, say via an index mutual fund or exchange traded fund, is generally the best way to execute this strategy.”
The S&P 500 has gone up 183 percent in the last decade, even counting this week’s drop.
So, many investors are out of practice experiencing downturns. And young people have no real experience with drops at all.
"A multiday decline, in your first few years of managing to put a bit of money away, can be harrowing," says Lieber. "Putting long-term savings someplace safer is probably tempting, and perhaps it’s the only way for you to sleep better at night. But long-term returns in bonds will most likely be lower, so permanently moving money into them means you’ll need to save that much more to meet your goals."
“Drastic investment moves are sensible only when there have been drastic changes in your life, like a big new job or consequential medical news,” says Lieber.
For people who’ve retired already, three to five years’ worth of income needs should be set aside that isn’t impacted by roller-coaster swings in the stock market, experts tell Singletary. And a common recommendation is to maintain a 60-40 mix of stocks and fixed-income investments.
"The stock market will do what it does — rise and fall,” says Singletary. "If you’ve got a plan based on your risk tolerance and investment horizon, don’t let fear make you swerve in the wrong direction and lose traction."