Worries about a trade war causing a recession have become global. Investors are concerned about retaliatory tariffs, with China responding with counter-measures that could lead to a worst-case trade scenario. Stock markets worldwide have dropped, and investors are seeking safety by buying bonds, which is pushing interest rates down.
Why having a balanced investment plan matters now
Market fear can create buying opportunities
The VIX index, often called the market’s “fear gauge,” spikes during major market drops like in 2008 and 2020. These are times when investors feel most nervous and worried things won’t improve.
The chart also shows how the S&P 500 performed in the year following these fear spikes. While no one can predict exactly what will happen in any given year, history shows that some of the best investment opportunities appear when fear is highest. As Warren Buffett famously said, be “fearful when others are greedy, and greedy when others are fearful.”
This isn’t about trying to time the market perfectly. Even when fear is high, markets may not bounce back right away. Instead, consider this support for taking a big-picture view of your investments. Market downturns often create attractive prices, making it sensible to consider adding to – not running from – these assets.
Investment prices are more reasonable today
Which investments have helped this year? Bonds have performed well as interest rates have fallen, helping to balance portfolios and offset losses in stocks. Bonds typically show less dramatic price swings than stocks and often move in the opposite direction. This is why investors say “bonds zig when stocks zag.” Holding assets that don’t all move in the same direction helps prepare for difficult times.
After years of strong stock market gains, prices now look more reasonable compared to company earnings. The S&P 500’s price-to-earnings ratio (a measure of value) has fallen to 20.7x. Some sectors like Technology, Communication Services, and Consumer Discretionary have seen bigger drops in their valuations.
The bottom line? Both protecting your money and seeking growth opportunities matter during market uncertainty. This balanced approach helps manage risk while allowing you to benefit from opportunities that appear during fearful times. In the long run, holding an appropriate mix of investments remains the best way to reach your financial goals.
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