The news on Wall Street isn’t pretty these days: U.S. stock markets have been falling for months. The S&P 500 has been hit particularly hard, with its worst year-to-date performance in 20 years.
If you’re heavily invested in the stock market, you may be wondering what to do. A listener of money expert Clark Howard’s podcast recently asked for Clark’s advice on what to do about his investments. He says he’s contributing 13% of his salary to a 401(k) and that his current return rate is -25%. Ouch!
“Welcome to the money-losing club right now. We are all right where you are.”
But take heart from what Clark has to say about investing in these economic times.
He points out that a bear market, characterized by a price drop of 20% or more from its most recent high, happens every few years. But Clark says something else is also going on right now, and it’s not all bad news.
“What’s unusual is a rout, both in stocks and bonds, pretty much simultaneously. That’s very unusual. It’s, ironically enough, why bonds are potentially going to be a great holding moving forward from here,” he says. “Stocks have depressed in value so much that stocks, looking forward, are actually a more promising holding than they were before you saw the decline of 25%.”
Read why this is an especially opportune time to buy Series I Savings Bonds.
“The stocks had been overvalued,” Clark says. “And we’re now in a period of correction. The thing with a correction is that you don’t know when the end of the decline comes, but you can’t run for the hills.”
Instead, Clark advised the listener to continue investing in stocks through his 401(k) contributions, noting again the lower stock prices: “You’re buying them on the distress sale clearance rack right now, and that has the potential to benefit you a lot moving forward.”
Clark is a proponent of investing for the long term through dollar-cost averaging, which means that he puts money into particular investment vehicles — like a target date fund — consistently over time. He does this regardless of how the stock market is doing.
Clark says he’s staying the course because he believes in the free market system:“I believe that over time, people, out of self-interest, start businesses — create products or services that people ultimately want — and create wealth. And by proxy, by owning these investments, I’m getting a piece of this wealth.”
Want more investing advice? Read our in-depth guide on how to save and invest the Clark Howard way.
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