Index Funds, Caution Urged To Weather Market Swings

By Grant D. Crawford | CNHI News Oklahoma

The rollercoaster otherwise known as the stock market did not diverge from its usual operations in 2018, as investors saw an up-and-down year and likely expect the same in 2019.

The Dow Jones Industrial Average closed at an all-time high of 26,828.39 in early October. But by November, the Dow had erased all of its 2018 gains. By mid-December, the Dow and S&P 500 were on pace for their worst performances in December since 1931. The markets then had a post-Christmas rally, as the Dow saw its biggest one-day gain Dec. 26, with over 1,080 points; the S&P rose 4.9 percent; and the Nasdaq closed up at 5.8 percent.

Stocks closed at the highest level in a month Tuesday, Jan. 15, demonstrating the market’s potential for fluctuation. While the degree of variation in 2019 is hard to predict, investors can expect stocks to see-saw again.

“Market volatility is somewhat unavoidable,” said Dr. John Yeutter, associate professor of accounting at Northeastern State University. “It is an essential part of the market’s ‘random walk.’ Because the market follows this random walk, the prospects for the market this coming year cannot be predicted.”

Many factors go into the market’s condition, as it is often influenced by political events, news and other factors. Before they can predict its state, financial advisers must wait for events such as the U.S.-China trade war to play out.

“I have not looked deeply into the forecasts for the upcoming year, but it seems that persistence of the ongoing U.S.-China trade war and political factors may affect the stock markets in 2019,” said Dr. Sanchari Ghosh, NSU assistant professor of economics. “Then the global impact as the news of the Brexit fallout may have some impact, I believe. The market is still on the rebound, so we cannot predict anything right now.”

In fact, China recently made plans to cut taxes as a way of addressing the trade war, and it is likely the country’s move played a factor in U.S. stocks closing at the highest level in more than a month.

Because of the uncertainty regarding the market’s trends, it’s less likely that U.S. investors will slide all the way through 2019 without a hiccup or two. It is not uncommon for stocks to take major dips like they did in 2018, so market players can take precautions to reduce the effects of a volatile market.

Yeutter said investors should buy and hold well-diversified index funds with low fees.

While a person’s portfolio can decrease in value, that does not mean he or she must sell shares before the situation turns dire. Instead, some folks might be better off holding out and staying patient.

“Experts have suggested more patience in investment, either in stocks or bonds,” said Ghosh. “I guess they are suggesting people should be less active in the market right now and be cautious about selling stocks. I would say play safe with your money, even if it brings less returns for a while.”

What you said

In an online poll on the Daily Press website, readers were asked: “For those who invest in 401Ks or other market-related funds or stocks (or not), how do you feel about your portfolio and your gains or losses over the past six months? Out of 21 respondents, five said they were afraid of a recession and plan to adjust their portfolios to make them less aggressive; eight said they were afraid of a recession, but plan to hold the line as they expect the market to eventually swing upward; four said they were confident in the direction the economy is headed and plan to invest more aggressively; and four respondents said they have no investments and plan to keep it that way.

This article provided by NewsEdge.