Stock market changes and government stimulus packages have been major news headlines in recent weeks. When big changes occur in the economy, it is normal to feel unsure, confused, or even worried. People are understandably concerned about the personal economic impact of COVID-19.
In this episode of Hot Topics, we sat down with financial advisor Adam Costarella to discuss what we can all do to navigate the changes.
One of the things Costarella pointed out was that wide swings in the stock market (known as “volatility”) were expected this year, even if COVID-19 was taken out of the equation.
Leading up to 2020, the market was at an all-time high and it’s an election year, which has historically been a precursor for market volatility, according to Costarella.
It’s also important to have a little perspective when comparing your portfolio to the market, which may not be 1:1. When most people say “the market,” Costarella explained, they’re referring to the S&P 500, which measures the stock performance of the 500 largest companies listed on stock exchanges in the United States. Unless you’re using an index fund, your specific portfolio is not the S&P 500, he added. As a result, even if the market goes up 10 percent or goes down 10 percent, that does not mean that your 401(k), IRA, or investment account is swinging wildly along with it, Costarella said.
Additionally, markets are not taking into account your personal time horizons. Large institutional investors are selling and buying investments on a shorter-term basis than most of the general public. Many of us are planning for retirement or longer-term investment horizons, which makes it important to maintain a cool head and avoid rash decisions.
For more insight into the personal economic impact of COVID-19 and what financial considerations to keep in mind, listen to the latest episode of Hot Topics, “Financial Foundation.”