Financial uncertainty that rang in the new year again plagued global markets on Friday. The Standard & Poor’s 500 index sank to 15-month lows in midday trading, falling more than 12 percent since its May 21, 2015 closing high. The Dow Jones Industrial Average lost more than 400 points. For the year, U.S. stocks have shed $2.5 trillion in value, and some analysts and investors are warning the pain will get worse as stocks get closer to a bear market, meaning a drop of 20 percent from their highs.
But where there is chaos, opportunities lurk, too. For the most part, financial advisers are recommending a wait-and-see attitude, but here are three money moves you might want to make now when the markets are on the decline.
1. Speed up your scheduled buying. For investors employing a dollar-cost averaging strategy in which they buy a fixed dollar amount of a certain investment on a regular schedule, it may be time to speed up the purchases, says Michael McKevitt, a wealth manager in Palatine, Illinois. Take advantage of a lower stock market and squeeze in an extra purchase or two. That way, you can avoid buying as much when prices go higher.
If you have extra money ready to invest, maybe it’s time to put some of it into the market, says Neil Waxman, managing director of Capital Advisors Ltd. in Shaker Heights, Ohio. “Put some (cash) to work now,” he says. Stocks may still fall from here, but if you’re investing for the long run, you should still benefit — and it’s safer to not try to time a market bottom.
2. Lock in your loan rate. If you’re in the midst of refinancing or getting a mortgage to buy a home, lock that rate. The rate for the 30-year mortgage—the most common home loan—has dipped below 4 percent, according to Freddie Mac’s weekly survey. That’s largely due to the sell-off in stocks, as investors pour money into safer assets like the 10-year Treasury, which fixed mortgage rates tend to track.
But mortgage experts don’t expect rates to stay below 4 percent for long, especially since the Federal Reserve has signaled it will hike rates further this year.
“For what it's worth, I do think mortgage rates are going to hit 4.5 percent this year, probably around July, and remain that way through the end of the year,” says Scott Sheldon, a loan officer with Sonoma County Mortgages in California. “There is enough momentum that would put us in that type of interest-rate environment.”
3. Keep your losses in perspective. When jittery clients call Brian Power, a certified financial planner with Gateway Advisory in Westfield, New Jersey, he goes over how the recent volatility has affected their personal portfolios to give them a better perspective and reinforce their long-term goals.
“It's important to keep things in perspective. The news channels … are making it sound like the world is ending,” he says. “Clients are usually very surprised the damage isn't nearly as bad as they thought it would be.”