Stock prices continued to fall last week as the conflict in the Middle East intensified. The S&P 500 is down just over 7% year to date. As oil prices have surged, shipping costs increase, driving inflation. Inflation concerns had the Federal Reserve holding interest rates steady, which further contributed to the market decline.
There are three important things to do when the market drops. First, keep in mind that you have not lost anything. You still own the same number of shares you did before the drop. You just can’t sell them for as much right now. This time last year the S&P dropped almost 20%, before recovering to post a gain for the year of over 15%.
To illustrate those percentages, if you had a share of Spacely Sprockets that was worth $100 on January 1st, it would have dropped to $80 a year ago. But by December 31st, it would have been worth $115. The entire year, you owned one share of stock. What you could have sold it for is what changed.
Second, realize that stocks are on sale. This is a great time to buy more. Either through continued contributions to your retirement plan at work, or by investing cash sitting on the sidelines.
Third, take advantage of market drops for tax loss harvesting and rebalancing your portfolio. As long as you are staying invested, this is a great time to make changes from a tax perspective.
Your action item this week is to fund your Health Savings Account and IRA for 2025. You have until April 15 to fund your accounts for last year.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.