If the market's wild ride has you confused about your next investment move, you aren't alone.
You may be wondering, ``Do I really do nothing with my stocks or 401(k), like many advisors suggest?" or "when is the right time to buy or sell?"
No one likes to lose money, but panicking isn't the right answer, either.
In fact, experts say you should be prepared for market downturns.
"I tell clients and prospective clients that if a bear market is all it takes to ruin your financial future, then you're not investing and planning correctly," said Mitch Goldberg, president of ClientFirst Strategy, an investment firm that caters to individual investors.
The sell-off began last week when President Donald Trump announced the U.S. would slap tariffs on $300 billion worth of Chinese goods next month. The slide continued on Monday, leading to the worst trading session of 2019, after Chinese authorities let the country's currency, the yuan, decline to its lowest level against the U.S. dollar in more than 10 years.
So what should you do with your investments amid all this volatility? Goldberg has the answers to four of the most common questions.
1. Why is the market so volatile right now?
The main reason for this most recent sell-off is [...] Trump's latest tariffs.
But beneath the surface, there are deeper issues that need to be taken into consideration for a full understanding of why stocks are selling off.
For starters, stocks, generally speaking, are considered expensive. Globally, manufacturing is in a funk in many parts of the world. Since the cost of tariffs have to be passed on to someone, retailers have to either absorb the extra costs and take a hit to their already razor-thin margins or pass the costs on to consumers and risk their ire.
This year is also setting up to be a record for store closings, which could affect holders of commercial mortgages negatively. Iran is storing millions of barrels of oil in China, which could purchase those barrels at a discount and flood the market. This could hurt manufacturing in the U.S. and hurt energy companies. China is imposing a ban on American agriculture products.
And the big, huge wild card is whether or not China lets its currency weaken substantially against the U.S. dollar, which would negate the harm from tariffs to them but leave American consumers with nothing to show for the trade war except for higher consumer prices.
All in all, it's the sheer weight of all of these issues and others that are weighing on investor sentiment.
2. Why is it a bad idea to sell right now?
Presumably, investors are invested according to their own risk tolerance, time horizon and goals. If this is truly the case for someone, then this recent downtick is really just part of the expected possibilities.
But the people who haven't aligned their investments with those three objectives will be the ones caught flat-footed and will be under pressure to make hasty investment decisions. Changes to one's investments and financial plan under pressure raises the opportunity to make mistakes, which could be costly now and in the future.
The good news is that the major U.S. stock market averages are still solidly in positive territory this year and are still well above the levels they sank to last Christmas Eve. So, it's not too late to make the necessary adjustments to one's investments.
Past corrections over the last 10 years have recovered quickly, which has made a lot of investors complacent. Remember, we are all 10 years older since the Great Recession. This means that, for a lot of people, they're too close to their retirement to be taking on the same level of risk that they took on back then.
For the younger set, I'll say 40 and under, you should welcome a downturn in stocks. A correction and even a bear market is your friend. Just keep plowing money into your long-term investment accounts because your investments could become supercharged when we hit the next peak, which has always happened.
3. Should I make any changes to my 401(k)?
Before you make any hasty changes to your 401(k), just sit back for a moment and figure out about when you'll need it to live off of. It may go without saying, but the further away that time is, the more aggressive with your investment choices you could be.
Young people — again, under 40 — should be in stocks. By the time you hit your 50s, your asset allocation should start to include fixed income and money markets, the more stable kind of investments.
This advice is generalized and everyone's situation is unique, so everyone really needs to do some analysis to evaluate their own situation. I consider one's time horizon to be the determinant of one's risk tolerance.
4. How much longer should I wait to buy or sell?
This may sound counter-intuitive, but when faced with the "when" decision to buy or sell investments, put aside external factors like what you're reading and watching in the news and focus on your internal needs; your three key objectives, time horizon, risk tolerance and financial goals.
For example, if you are contributing to your 401(k) every month and you have 20 or more years until retirement, the best time to buy is now and make time your asset.
When you're closer to needing to take IRA distributions from your 401(k) rollover, time becomes your liability and you'll most likely need to sell according to the timing of your distributions.
Regardless of which side of this equation you're on, external factors such as a nasty week in the stock market has little to now bearing on the answer.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.