2 in 5 Americans Have Been Impacted by Stock Market Volatility. When Will It End?
KEY POINTS
- Investors saw their portfolios take a hit in 2022.
- Stock market volatility could persist in 2023 due to inflation, Fed rate hikes, and recession fears.
- It's important to recognize that volatility is normal, and to stay focused on the big picture.
For better or worse, stock market volatility is nothing new.
It would be more than fair to say that 2022 was a tough year for investors. Many people saw their IRA or brokerage account balances take a hit last year as stock market volatility reared its ugly head.
Meanwhile, in a recent Country Financial survey, 41% of Americans said stock market volatility has impacted them to some degree. And unfortunately, we could be in for many more months of upheaval before the stock market settles down.
Why 2022 was so rough -- and why 2023 might be a repeat
There were a host of factors that caused the stock market to be extremely volatile in 2022. For one thing, consumers spent the entire year grappling with rampant inflation. And that led the Federal Reserve to get aggressive with its interest rate hikes.
Interest rate hikes are problematic for consumers because they tend to indirectly drive up the cost of borrowing, whether in the form of a credit card balance or personal loan. But also, the fear last year among many financial experts and consumers alike was that aggressive interest rate hikes on the Fed's part would lead to a massive pullback in consumer spending -- a decline large enough to fuel a recession. And there's nothing like the fear of a broad economic downturn to send stock values plummeting.
Unfortunately, though, today's circumstances aren't all that different from 2022's. Inflation is still a big problem, even though it's cooled since last year. Consumer borrowing is still very expensive. And there's still the potential for a recession to strike -- though to be fair, some experts have scaled back their warnings a bit.
What this means is that 2023 has the potential to be another volatile year for stock investors. And so the best thing to do is try to think long term, and worry less about week-to-week fluctuations.
It's all about the big picture
Whether you're investing in a brokerage account, an IRA, or another account, ideally, your plan should be to load up on quality stocks and hold them for many years. And if that's your approach, then it should actually make you more comfortable with the idea of short-term volatility.
The stock market has long been subject to wild swings, so the events of the past year are really nothing new. And if you have a decades-long investment window, the reality is that near-term volatility shouldn't bother you or cause you to lose sleep.
This isn't to say that it's fun to see your portfolio balance decline. Obviously, no one wants that. But it's also important to keep reminding yourself that investors who take a long-term approach to buying and holding stocks tend to be rewarded. So rather than let ongoing market volatility negatively impact you, do your best to ignore it.
In fact, a good bet is to not check your portfolio balance more than once a quarter. The less you peek in, the less stressed you might end up at a time when the market has yet to really settle down.
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