NEW YORK — Stocks are spiraling lower, bonds are losing money and everything suddenly feels very shaky. Time to overhaul your financial plan, right?
Financial advisers hope your answer is an emphatic “no.” Ideally, you already set up your plan with the understanding that something as common as a 10 percent tumble in stocks would occur again and again. But at the very least, the recent turmoil offers a good marker to reassess where things are, and where you want to be.
Conditions have certainly changed from the smooth run of past years, when stock funds were returning double digits with few hiccups. In the last month alone, S&P 500 index funds have dropped close to 10 percent. Bond funds are supposed to be the safe part of a portfolio, but many have lost ground this year.
Investors are ringing the phones much more than usual at Inspired Financial, a financial-planning and investment-management firm in Huntington Beach, Calif. But the voices from clients aren’t in a panic, said Evelyn Zohlen, the company’s founder and the incoming president of the Financial Planning Association.
“They’re pragmatic,” Zohlen said. “They’re asking if there’s anything unusual about this drop and whether they should be doing anything different.”
Some things that she and other financial advisers suggest to keep in mind:
This is what stocks do. The stock market has offered the best long-term returns historically, but they’ve come at a price. Stocks can drop suddenly, sometimes for inexplicable reasons.
Drops of 10 percent are common enough, even when the market is largely on the upswing, that Wall Street has a term for them: “corrections.” Since the summer of 2015, the S&P 500 has had three such declines, and the index is narrowly close to a fourth. The S&P 500 is down 9.9 percent since setting its record last month.
That latest trigger for market turbulence was a news report on Monday that President Donald Trump may intensify the U.S. trade war with China by announcing tariffs on all its remaining imports. It sent the stock market in reverse, and the S&P 500 flipped from a gain of 1.8 percent in the morning to a loss of 0.7 percent by the end of the day.
An investment mix to match your saving goals. If you’re saving money for a retirement that’s 10, 20 or 30 years away, financial advisers ask that you ignore the market turmoil and remember that you’re in it for the long term. Selling stocks now would only lock in the losses.
If you’re saving to pay your kid’s tuition in the next couple years, or even to pay next month’s credit-card bill, the money should be in something far more stable than stocks. Bonds generally have steadier returns than stocks, though many have had losses this year as a result of rising interest rates.
Control what you can. No one can predict where stocks and bonds will go next.
So try to keep costs down. It’s one of the few actions people can control on their own. Funds with low fees tend to have some of the best success rates because higher-cost funds have to perform that much better just to match their performance.
