Why it’s wrong not to invest in a massive sale


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Most Americans are afraid to invest in a downturn in the stock market. Some fear losing their money, while others say they lack confidence in how to invest, according to financial experts.

But this reluctance to invest when markets fall can cost Americans dearly when it comes to their future retirement savings, and possibly prevent them from building a bigger nest egg, these experts warn.

About 74% of Americans, for example, say they would not stay invested if the stock market suffered a moderate or significant decline, according to a recent study of 3,000 American adults conducted by Vise, an investment management platform. technology-based investments designed for advisors. .

After a historic crash in March 2020, stocks hit record highs and continued their upward trajectory following unprecedented help from the Federal Reserve and Washington to prop up the economy amid the world’s worst pandemic in a century.

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Recent stock market declines could give investors the opportunity to acquire more stocks at lower prices, or at least maintain their retirement accounts, fund managers say.

“If you are a long-term investor complaining about an expensive market, this may be your opportunity to hunt for the bargains,” said Lindsey Bell, chief investment strategist at financial services firm Ally Invest, in a note to customers. “But a lot of times, it’s best to just sit there and do nothing if you’re for the long haul. “

Americans fear stock market crashes, but they shouldn’t panic

While October is often seen as a scary month for investors, developing a bad reputation following the crashes of 1929 and 1987 and the turmoil of 2008, September was actually the worst month for the stock market, with an average decline of 0.4%, depending on Stock. Trader’s Almanac.

Although stocks rebounded from last Monday’s losses, when the Dow Jones industrial average fell 614 points, major averages got off to a rough start earlier this month and remain slightly lower in September.

Earlier this week, investors worried about global growth and possible damage to the debt developers’ markets in China. Those fears eased, however, after Evergrande, one of China’s largest real estate developers, said it would make a payment due on Thursday.

The S&P 500, the benchmark used to track most mutual funds, has jumped 100% since the pandemic-fueled sell-off in March 2020, which included a rally of more than 35% since November without a single recoil of 5% or more.

That’s an unusual feat of strength, experts say, given that the S&P 500 has suffered an average of two setbacks of 5% or more per year since 1950, according to Bell. This means stocks are likely late for a pullback after a strong advance, she added.

Investors should take advantage of a market downturn to look for quality stocks that are now “on sale,” according to Daniel Milan, investment advisor at Cornerstone Financial Services, a financial planner in Southfield, Michigan.

Those who were left on the sidelines during the market turmoil last year lost considerable gains.

Young investors also have more time to absorb and compensate for losses in the market, financial experts say.

“Remember investing is not a race, it’s a marathon,” Milan said in a note.

According to Thomas Lee, Managing Partner and Head of Research at Fundstrat Global Advisors. He called last year’s market rebound ahead of most others.

The demographic shift is poised to generate strong stock returns during this period, Lee said in a note to clients this summer. In June, Lee predicted that the S&P 500 could trade up to 19,350 by 2038, which would equate to a 335% rise from Thursday’s close.

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Many retail investors “always buy the decline”

Some Americans, especially young investors, experience anxiety when they think about investing in the stock market. About 43% say they are not confident about the investment, data from Vise showed. Investors over 65 were the most optimistic, with 59% of them saying they were “very” or “somewhat” confident about the investment, compared to 44% of Gen Zers.

GameStop’s “short squeeze” frenzy earlier this year spurred renewed interest in stock trading, including first-time investors. In the first half of 2021, Fidelity Investments saw 2.3 million new retail accounts opened by investors 35 years of age or younger.

And many amateur investors took advantage this week of “buy down”, a strategy in which they recovered stocks that had fallen in price and became cheaper after Monday’s rout.

Individual investors have recovered a total of $ 4.84 billion in assets since Monday, Bloomberg reported, citing data from Vanda Research, a company that tracks retail flows in the United States.

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“Buy the dip” has been the Wall Street mantra for much of the past decade. It has become more mainstream and has even appeared on trending topics on Twitter. This mindset has sometimes worked well. From March 2009 to February 2020, the S&P 500 more than quadrupled while only experiencing four declines of 10% or more, according to Ally Invest.

The economy is recovering and corporate profits are rising again, and despite the challenges of COVID-19, investors have more hope for the future.

But the “buy down” strategy could face some near-term challenges, as the market could face increased volatility as the Fed soon begins to cut its bond purchases, according to Bell.

On Wednesday, the Fed maintained its extraordinary policies a little longer. This included a wide range of actions to help limit the economic damage from the pandemic. The central bank has indicated that it plans to start reducing its incentives to buy bonds by the end of the year and possibly raise interest rates in 2022, a year ahead of schedule. .

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Stocks still seem expensive to some while others find buying opportunities

Now that stocks are back near record highs, it may not be a good time to “buy down” as most stocks remain expensive for investors, argues George Ball, chairman of Sanders Morris Harris, a Houston-based investment firm.

After falling nearly 5% below its September 2 high last Monday, the S&P 500 sits just under 2% below its all-time high, while the Dow and Nasdaq are at 2, 4% and 2.1% of their respective highs.

The rule of thumb with investing is “buy low, sell high,” financial experts say. Some investors are worried about running out to cash in big on everything from GameStop to cryptocurrencies. They don’t want to miss a payment, but buy stocks that are still expensive, according to Mark Gorzycki, investor behavior expert and co-founder of OVTLYR, a behavioral analysis tool for retail investors.

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“Buying down has been a good, if not a great strategy over the past decade, but sooner or later it won’t,” Ball said in a note to customers, who suggested waiting until the The stock market is experiencing a decline of at least 20% from its recent peak to buy stocks of financial stocks that would be poised to benefit from a rise in interest rates.

But others, like Colin Scarola, vice president of investment research firm CFRA, have advised clients to seize shares of battered airlines as the latest wave of COVID-19 cases could peak, travel restrictions are fading and the demand for travel is returning.

“Now is an attractive time to buy airline stocks … as data from around the world indicates that air travel may recover to pre-pandemic levels much faster than experts predict,” said Scarola in a note.

Another thing to keep in mind is that a drop in the stock market can expose issues with your portfolio, so if you’re poorly diversified, now is a good time to restructure, according to Milan of Cornerstone Financial Services.

“Don’t panic and don’t sell,” added Milan. “The market is going through periods of decline. Selling in a bear market can have bad consequences, and missing the right moves can cost you dearly. “

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