Stocks took a dive on Monday as fears surrounding the new trajectory of the coronavirus pandemic took hold. In recent weeks, COVID-19 cases have been ticking upward on a national level as the highly transmissible Delta variant has taken over. And now, not shockingly, investors are reacting.
If you're worried about what Monday's downturn might mean for your investments, the answer is most likely “nothing.” Let's dive in.
Stay the course
It's always unsettling when investment values tumble overnight. And unfortunately, anyone who's been following the stock market throughout the pandemic is familiar with that concept.
Back in March of 2020, when the pandemic first really hit U.S. soil and cities everywhere were shutting down, investors had to face their first bear market in over a decade. For much of the second half of March, things looked really bleak as millions of jobs were shed in weeks and COVID-19 case numbers kept climbing.
Now unfortunately, the nation didn't recover from the pandemic quickly, as evidenced by the fact that we're once again seeing surges in cases. And even the economy, to a large extent, has not yet managed to recover (though the jobless rate has come down a lot since peaking in April of 2020, it's still considerably higher than it was before the pandemic began).
But the stock market did manage to rally last year, and by the time 2021 came to a close, it had recouped its value and then some. And that's why Monday's decline really shouldn't rattle investors too heavily.
While stock values may have dropped substantially, there's a good chance they'll recover quickly, as they've done throughout the pandemic. And even if they don't recover right away, if you commit to staying invested for a long period of time, a temporarily downturn shouldn't hurt you at all.
Imagine you're in your 40s and you're seeing the value of your IRA or 401(k) plan plummet right about now. Does that stink? Of course.
But think about it — you're probably planning to touch that money for another 20 years. When you consider a one-day drop in that context, it makes the idea of panicking actually seem kind of silly.
That said, there are things you can do in general to protect yourself against wild market swings. For one thing, load up your emergency fund. You should aim to have enough cash in the bank to cover three to six months of essential bills. That way, if a need for money arises when stock values are down, you won't have to cash out investments at a loss.
Next, make sure your portfolio is filled with quality stocks across a range of market segments. During a stock market decline, it can take certain sectors more time than others to recover, so having a diverse mix of stocks is key.
And finally, make sure you're invested appropriately for your age. If you're in your early 60s and are aiming to retire within a year, you should not have 85% of your assets in stocks. A relatively even mix of stocks and bonds is more appropriate for that stage of life, unless you happen to have enough income sources outside of your portfolio that you can afford to leave your investments untouched for a handful of years.
Remember, Monday's stock market plunge wasn't a unique event. Things like that happen all the time. The key is to not let them get to you, and to set yourself up to come away from downturns unharmed.
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