What Not to Do When the Markets are Down

The markets are down again, and we all know that it’s tempting to pull money out of the stock market when the market goes down. And as tempting as the idea of doing something might be, sometimes the right question to ask yourself should be, “Why shouldn’t I pull money out?”. The current downturn in the markets has been the worst since October 2020. But just like every other October, this shouldn’t worry you because the market often recovers soon after the October low. For example, if you look at last year’s low point, the S&P 500 is up 33%. So, if you focus on long-term investments, this sudden blip in the market is nothing to worry about, and most importantly, don’t panic. Panic selling is disastrous to a person’s portfolio, which is why it’s essential that you know your risk tolerance and how volatility can affect you. However, if you’ve got rules and your system’s telling you to take action, then, by all means, do something. 

The Relationship Between Interest Rates and Bonds

Bonds have traditionally had an inverse relationship with interest rates. Every time interest rates rise, bond prices usually fall, and vice-versa. Interestingly, when interest rates are low, most people become skeptical about owning bonds. At first glance, the negative correlation between interest rates and bond prices rarely makes sense. However, you need to understand here that when interest rates on bonds are low, stocks tend to drop in price. And what we see in the current market drop is a 1.3% rise in the 20-year Treasury bond. This further cements our constant argument of the benefits of a diversified portfolio. 

Gold Versus Cryptocurrencies 

Numerous factors would make gold a preferred store of value for many people. It’s scarce, valuable, and regardless of demand, supply remains low. But the most exciting thing about gold is that it has almost no correlation with currencies and stocks. Nevertheless, the past few years have witnessed an increased number of gold owners move to the new kid on the block, crypto. And although crypto continues to prove its value, it sometimes fails to live up to its billing. For example, in the current market low, Bitcoin was down 10% while gold was up 6/10%. This proves that investing in crypto might be a good move, but one of the low-risk ways to store value is by investing in gold.

Listen to learn what should I do when stock prices drop?