Markets are always in a state of change.
And this week markets are reacting to the breakdown of trade negotiations with China, and a renewed trade war as the U.S. has doubled tariffs on $200 billion worth of Chinese imports.
For new investors, seeing the market suddenly start going up and down like a roller coaster can be nerve-wracking. Consider these tips and our general advice:
Follow the Stash Way, our three-step strategy that includes regular investing, diversification, and long-term investing. We also recommend you turn on Set-Schedule, which lets you keep adding small amounts to your investments on a regular basis.
Market volatility is normal.
Don’t think about the daily or weekly or monthly volatility. Think about the long term, and remember, markets do go up and down.
Consider taking a long-term view. On average, if you look at the last 100 years, markets have increased slightly more than 8% a year*. Going forward, experts predict a long-term expected annual return for US large cap stocks (i.e., the S&P 500) of 5.9%.**
That said, there are some years where the market is strong and some years when things are not as strong. This is why you should consider taking that long term view when you’re thinking about investing.
Some things to think about.
There are two approaches that you can think about. The first one to consider is moving to less volatile investments. If you’re anxious about markets, you could think about adding bonds to your portfolio. They’re often good long-term investments that could help dampen the fluctuations in your returns.
Another option to consider, if you’ve got small amounts of money, is to ride out the downturn and stick to a regular investing schedule, and invest over time. You’ll effectively be purchasing investments sometimes when stocks are low, and sometimes when they’re high. Over time, share prices should even out.
What is a trade war?
You can read our longer piece here. But in short, a trade war is when countries engage in a tit-for-tat over tariffs. In response to increased U.S. tariffs on Chinese goods and services, China plans to impose $60 billion of new tariffs on a variety of U.S. exports.
The existing tariffs have already increased some costs for U.S. consumers, and have reduced demand for some U.S. exports, which could dent our economy, according to experts.
How might the trade war increase costs at home?
The economic conflict appears to be having a negative impact on U.S. farmers, who lost about $12 billion in the first quarter of 2019. Sales of soybeans to China were particularly hard hit. Also, the U.S. spirits industry, producers of whiskey and other hard alcohol, have experienced declining exports not only to China, but to Europe, Canada, and Mexico, where new U.S. tariffs on products have also caused trade tensions, according to sources. Meanwhile, U.S. consumers paid an estimated $12 billion in higher costs related to tariffs since 2018, according to reports. And they are experiencing higher prices on a wide range of items including dryers, lumber, cars, and clothing, shoes, and furniture, among others.
Over the last 20 years, the U.S. has entered into numerous trade treaties, the most famous of which is perhaps the North American Free Trade Agreement (NAFTA). These treaties, which are complex multilateral agreements that favor negotiations between all countries that sign, have reduced the threat of trade wars, in part by eliminating many tariffs on exported and imported products.
Trump has argued such agreements have flooded the U.S. with cheaper foreign-made goods, which make it difficult for U.S. manufacturers to compete. We’ll see how this all plays out.
Look at the big picture.
Don’t think about the daily or weekly or monthly volatility. Think about the long term.
We have a saying at Stash. It’s all about “time in the market, not trying to time the market.”
Selling effectively basically locks in any gain or loss you’ve made, but it sets your losses in stone.
Stay strong. Stay the course. Stay diversified. We’re in this with you.