After cruising through a relatively calm 2017, stock investors woke up in 2018 to a volatile market with wide swings that have left some new investors in a state of bewilderment, if not outright panic. Big climbs and dramatic dips have made everyone nervous, but new investors in particular have been shaken.
The S&P 500 has moved up or down at least 1 percent on 28 trading days already in 2018 — 15 increases and 13 drops. There were just eight swings of 1 percent for the S&P 500 all of last year. Plus, in February the Dow fell more than 1,000 points twice in just a few days, resulting in the two biggest point declines ever. Five of the biggest 15 point drops for the Dow have taken place in 2018. But the Dow has also enjoyed four of the 20 largest daily point gains ever this year, capped by a 669-point surge on March 26.
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“Fear of inflation and rising interest rates are driving market swings right now,” says Jason Labrum,CFP®, AIF®, founder of Labrum Wealth Management. “Even experienced investors have been rocked a little by this market. It is important for new investors to understand that volatile markets happen regularly, but there are some things they can do to insulate themselves from steep market swings.”
Labrum offers a few tips for new investors that will help them sleep at night despite what happens to the Dow Jones industrial average.
- Have a plan. Don’t just grab the latest stock that might be getting a buzz on television. New investors should be more concerned about steady growth than the latest “get rich quick” stock to hit the market. Make sure your long and short-range goals are identified.
- Know your risk tolerance. How much you invest is directly proportional to how much risk you are willing to take. If you are a low risk type of investor but you have chosen high risk stocks, you will be causing yourself stress.
- Don’t get emotional. Don’t let your emotions run your financial future. If you are only looking at the short term, your emotions about your stocks will be in constant flux and your stress level will be high. As a new investor, you should be focused on long-term investments. It is more financially sound, and it will let you sleep better at night.
- Do your homework. Take the time to learn the basics about the stock market and individual securities. Learn the basic stock market terms and what they mean, including financial metrics and definitions. Know the different types of stock market orders and the different type of investment accounts.
- Have a trusted licensed financial advisor. Although anyone can invest in the market if they have money, new investors especially can benefit from a financial advisor as they make their initial stock market investments.
“Before taking a new journey, it is always advisable to plan the trip well, know the destination and be prepared for detours,” Labrum says. “It is no different in the investment world. Preparation will reduce stress and make the journey more enjoyable.”
About Jason Labrum, CFP®, AIF®
Jason Labrum has been helping individuals, families and businesses with financial planning, portfolio management and business retirement plans since 1998. Jason spent 12 years at two major financial firms and in 2009 founded Labrum Wealth Management (www.labrumwealth.com). He also founded Financial Detox® which is a consumer education brand, radio show on KFMB in San Diego, Podcast. Jason recently finished his first book, Financial Detox® - Achieve Financial Independence and Manage Your Wealth for Maximum Impact.