It’s been a challenging year for Wall Street. Nasdaq has lost a third of its value so far, and the S&P 500 reported its worst first-half return since 1970.
These responses aren’t a surprise, considering all the factors involved. Record-high inflation, increasing interest rates, Russia’s invasion of Ukraine and the still-lingering effects of the pandemic are all hindering investment performance. But how low will the stock market tumble?
Stock Market: Where is the Bottom?
The lowest point of the stock market is difficult to pinpoint, because we won’t know we’ve bottomed out until we’ve passed it. This is why we have recommended to many of our clients to continue making purchases into stock funds. At some point there will be a bottom, but time will tell when that is. Remember, timing the market is usually a losing game. All we know for sure is that volatility is going to happen. And typically, things even out over the long term. Below is a chart from Dimensional that illustrates that rebound effect well:
Chart from DimensionalBear Market: What Should You Do?
We entered a bear market in June 2022 for the first time since March 2020. A bear market is when the stock market’s value drops by more than 20 percent. For most investors, the key to weathering a bear market is to stay the course. Have a balanced, diversified portfolio with a mix of investments. Try not to make quick, fear-based decisions. And work with a financial planner if you want additional help navigating downturns.
Some people ask, “Why not just get out of the market for now?” The truth is, you’re better off staying in and riding out the market changes because if you wait, you might be too late to get back in. We want to avoid moving in and out of the market frequently. It’s really tough to figure out the best time to get back in.
If you’re retired or approaching retirement, you might want to make sure you have 3-5 years in stable value funds, cash or other liquid assets, since you have less time to recoup investments. As you get older you want to have a pot of money and shift 2-5% from that into safe securities. That way you can draw on those funds for retirement income and let the stock funds bounce back.
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