Stock Market: Investing Tips for Stocks’ Best and Worst Days
Inflation is sky high, recession worries are rife and stocks are crashing. Your first instinct may be to join the sale, but it’s actually very important that you keep your money invested right now.
If you’re invested in stocks and constantly checking your portfolio, you probably haven’t had a good few weeks. The S&P 500 dipped into bearish territory on Friday, the Dow Jones Industrial Average is down about 15% for the year and the tech-heavy Nasdaq is down 28% in 2022.
Even though the market decline may make you uncomfortable, keeping your money in the stock market now is probably a good long-term decision. This is because the best market days tend to occur around the worst market days. Between Jan. 1, 2002, and Dec. 31, 2021, seven of the best days for the S&P 500 occurred in just two weeks of the index’s 10 worst days, according to JP Morgan Asset Management’s 2022 “Guide to Retirement” report.
“The stock market pendulum is swinging very, very wildly,” says Jack Manley, global strategist at JP Morgan Asset Management. “When things get out of hand, they come back very quickly.”
Why the best days for the stock market are so close to the worst days
Markets today are fundamentally different from what they were 10 years ago, Manley says. Indeed, technological innovation has led to developments such as high-frequency trading, which involves large volumes of stocks being traded at high speed. But it also led to a boom in retail investment.
We’ve mostly seen this boom during the pandemic. COVID-19 kept many people at home, where they started investing as a hobby. Federal government stimulus checks have given retail investors more money to buy stocks, cryptocurrencies, etc., or provided them with funds to invest for the first time.
Meanwhile, online trading platforms like Robinhood made commission-free trading easier and allowed people to buy fractional shares, meaning they could invest in a company like Tesla (which traded at over $1,000 per share) with as little as a single dollar.
“Information travels much faster,” Manley says. “It’s so much easier to be an investor in today’s world.”
The combination of fast-changing information and more market participants means the stock market in general is more volatile than it used to be, Manley says.
Take a look at the last month. The S&P 500 fell 3.6% on April 29, marking one of the worst days of the year for the index. But a few days later, on May 4, the index was up almost 3% for one of its best days, according to data from JP Morgan Asset Management. And in 2020, March 12 — the S&P 500’s second-worst day of the year — was immediately followed by its second-best day of the year.
The market is used to being overbought or oversold, which means there is no real “middle ground”, adds Manley.
Why it’s important to stay invested
While you can’t predict exactly when the best market days will occur, missing them can cost you dearly. If an investor had bought $10,000 of the S&P 500 in 2002, they would have seen their balance grow to $61,685 if they remained fully invested over the next two decades, according to the JP Morgan Asset Management report. But if they missed the 10 best days in the market, their annualized return would have been cut in half – and they would only see their balance hit $28,260.
It’s especially important to maintain a disciplined investment approach when the markets are falling. If you fall prey to the temptation to sell your investments right now, you might do more harm in the long run, says Anjali Jariwala, certified financial planner and founder of Redondo Beach, Calif.-based FIT Advisors.
“Once you’re out of the market, chances are you’ll miss the rally when the markets rebound,” says Jariwala. “They will at some point because markets are cyclical.”
Most people who sell during a recession tend to buy back into the market when it’s too late and the markets have already rebounded, she adds. At this point, an investor has missed the opportunity to recoup their losses.
Also, it’s important to remember that seeing red in your wallet doesn’t mean you’ve actually lost money.
“None of that stuff that goes into your portfolio is a loss unless you sell it,” Manley says.
And that’s why you probably shouldn’t be selling right now.
More money :
Stocks are on the verge of a bear market. What should investors do now?
4 investing steps to take instead of panicking about volatile markets
7 Best Online Stock Trading Platforms of 2022