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Should you worry about the stock market right now?
Financial markets are complicated, we all know that, but in times of high volatility, it’s good to remember the basics to help you decide what to do with your investments and how much if, at all, you should be worrying about the current state of the stock market.
What’s going on right now?
In the last week, financial markets in the UK and the US have seen massive downturns. While there are always multiple reasons for any shift in a market index such as the Dow Jones or the FTSE, it’s being suggested that events happening in were precipitated by the current slide.
It may appear counter-intuitive, but economists have indicated that it was the healthy state of the US economy that caused the temporary dip in share prices. The fact that wages are increasing has meant there’s a concern that this will lead to a hike in inflation rates, and that’s what scared the market.
It’s also the case, however, that despite a record dip in share prices earlier this week when the S&P index fell by 7% in one day, within just a few days, most of the loses had been recovered.
In the UK too, although the FTSE tumbled in response to the sell-off on Wall Street, the following days saw some recovery. That said, things remain a little choppy at the present time. But a lot of smart investors know enough to stay on board right now.
Should you sell?
Before you hit the panic button and dump all your holdings, it’s wise to take a minute to draw breath and think about why you put your money into the stock market in the first place. For the majority of investors, looking for medium to long-term gains, market volatility is nothing to worry about.
Over the past few years, investors have possibly become too used to stability in the markets, but that’s unusual. It’s far more common to see swings in the market, but that doesn’t alter the underlying fact that over a period of around three years or more, the stock market is relatively safe and will provide substantial returns. Seek good advice, sites such as Money farm often have tips such as this short video, to help you make the right decisions.
Diversify, diversify, diversify
The golden rule of investing is to make sure you don’t put all your eggs in one basket, or in this case, all your assets in one place. It’s wise to spread your money amongst a range of classes and sectors so that you can hold equities, but also think about something safer such as bonds.
You can also consider putting some money in higher risk ventures, such as property or backing a new start-up, but don’t forget, with those kinds of investment, never put in any more than you’re willing to lose. None of us know entirely what’s going to happen – if we did, we’d all be millionaires!