The stock markets have taken investors for a wild ride over the past week, with jitters in the United States spreading around the world. When the markets behave erratically, anxieties escalate and questions naturally arise.
Is now the time to invest? What should I do with my 401(k)? I’m about to retire — what does this mean for me?
Below, we answered several of the most common questions from our readers. The questions have been edited and condensed for clarity. If you’d like us to address any others, please write to us using the form at the bottom of the piece.
What is the likelihood that this will be seen as a good opportunity to buy since basic economic indicators remain positive? — A reader in New York, N.Y.
Would you say it is time to buy and if so, when and in which world markets? — A reader in Goa, India
Not even the billionaire investor Warren Buffett could tell us with any sort of precision whether this is the right time to buy. But market dips can be a good time to start investing, as long as you are allocating your money in a prudent way that will help you achieve your long-term goals.
To start, it helps to define those goals.
Are you investing money that you want to grow to pay for your child’s college — five years from now? 18 years from now? Or for your retirement?
The time frame makes a difference because many financial planners don’t recommend investing money in stocks if you will need that money imminently, or generally within five years.
If you aren’t comfortable plunking all of your money in the stock market at once, consider investing on a consistent schedule over time. Investing at regular intervals allows you to automatically take advantage of dips in the market.
Going over all of this with a trusted financial planner — one who pledges to act in your best interest — can be a wise investment. As my colleague Ron Lieber wrote in his column last week, there has never been a better time to hire help, even if it’s just to help you come up with a plan that you want to do on your own.
I have 35 percent of my defined contribution plan invested in a U.S. stock market fund, 25 percent in a Canadian stock fund, 20 percent in an international stock fund and 20 percent in a money-market fund. I’m 15 years from retirement. Is this the right mix? — A reader in Canada
There are no right answers here — but there is probably a strategy that is right for you and your unique circumstances. Generally speaking, how you choose to allocate your investments between stock, bonds and cash should be in keeping with your overall goals, age, time horizon and stomach for risk. A diversified portfolio of inexpensive stock and bond funds, both domestic and international, is typically a good place to start.
Precisely how you divvy it all up is a highly personal decision. Consider this thought exercise when thinking about how much you want to invest in stocks.
Figure out the total amount you have invested in the stock market now (as opposed to money in bonds in cash). Then think about what you would do if that pot of money lost 10 percent of its value. What about 20 percent? Would you be willing to sit tight and remain invested?
If the answer is “no,” you may be invested too aggressively.
On the other hand, if you expect to live another quarter-century in retirement, you want your money to grow enough to at least keep pace with inflation.
If you want to see how your current allocation compares to what a professional might choose, you can also look under the hood of a target-date fund — a mutual fund whose mix of stock and bond investments gets more conservative as it approaches a target retirement date.
In your case, that would be somewhere between 2030 and 2035. (Just keep in mind that some of these funds are more aggressive than others. So look at funds from, say, Vanguard, Fidelity and others to get a better feel for how they vary.)
How does it affect the housing market? — A reader in Grover Beach, Calif.
The stock market’s gyrations are not likely to have a tangible effect on the housing market — at least not right now, according to Mark Zandi, chief economist of Moody’s Analytics.
If the market’s overall slump is limited to the roughly 10 percent decline from its peak, Mr. Zandi doesn’t expect any changes. Stock prices are just back to where they were at the start of 2018. But a more significant stock market drop could change the sentiment toward the housing market. As people’s savings and investments decline, they often become less willing to buy a home.
“If stock prices keep dropping, say 20 percent, and stay down, then it will sap the energy from the housing market, particularly at the higher end of the market,” Mr. Zandi said. He added that shoppers for higher-end homes are already trying to digest the changes that came with the new tax legislation, which, for example, limits the deduction on mortgage interest. A meaningful market dive could also dampen enthusiasm within the vacation home market.
“So no big deal so far,” he added, “but the script is still being written.”