Many financial planners have been warning that the stock market was in for a “correction.” Times have been too good, they cautioned.
“For more than a year, Wall Street has appeared unstoppable, unfazed by a tepid economic recovery in the United States and a lingering recession in Europe,” wrote The Washington Post’s Drew Harwell. “Workers watched their 401(k) retirement accounts grow even if their paychecks did not. The climb remained unchecked even as market skeptics warned that stocks were overvalued.”
And then on Wednesday the market took a nasty turn. It went down — way down. The Dow Jones industrial average plummeted to what would have been its worst trading day in three years, Harwell reported. Within half an hour, the Dow had swung up and down more than 500 points.
At the end of the trading day, the Dow closed at 16,141.74, down 173.45 points. Analysts attribute the downturn in part to fears about a recession in Europe and the Ebola crisis. News that an infected U.S. health-care worker had flown aboard a busy jet led to a sell-off in airlines stock, Harwell said.
Should you be worried?
“Though the Dow has fallen more than 400 points, or about 2.6 percent, since the beginning of the year, the Nasdaq and S&P 500 remain on positive ground,” Harwell reported.
And The Post’s Jonnelle Marte reported this from Stuart Freeman, chief equity strategist for Wells Fargo Advisors: “Yes, there’s a lot going on, but this volatility here is a little more normal.”
“Freeman says he expects earnings to grow by 7 percent next year, which could lift markets higher,” Marte reported. “The U.S. economy, while growing slowly, is still growing, he says.”
So, rather than bailing on the market, use the downturn to your advantage. As Marte writes, it’s at these times that experts recommend dollar-cost averaging, which means buying stocks at regular intervals regardless of whether stocks are going up or down. With this strategy you take advantage of a rising stock market but also keep buying stocks after a drop, when shares are cheaper.
Use days like Wednesday to be sure you have the right amount of risk in your portfolio, Freeman told Marte. “After substantial shifts in the bond and stock markets, some investors may find they own too much of one investment and not enough of another, making it a good time to re-balance, he says. But instead of making big changes, investors should make sure they’re sticking with their long-term plans,” the report said.
Have the recent gyrations in the stock market got you worried?
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The Washington Post has a package of stories that can help families in student loan debt.
Danielle Douglas-Gabriel has a useful story about getting a handle on that loan debt. It comes right on time, since people who graduated from college last spring are coming to the end of the six-month grace period on their student loans. Now they have to start making payments on that debt.
Douglas-Gabriel provides a number of tips, starting with this one: Know what you owe. Make a list of all of your loans, with the lender’s name, balance, interest and repayment status. In her report, you’ll also find guidance on repayment options, consolidating your loans, paying them off early and the difference between forbearance and deferment.
Post TV has put together a great video to illustrate the best ways to pay back your student loans.
And go check out Get There, The Post’s new personal finance site, which has developed a great student loan calculator to show how much income you need to make to handle your debt. Some experts recommend student loan payments should be no more than 10 percent of your gross income (before taxes). A good rule of thumb is not to borrow more than your first year’s salary.
Other Post stories on student loans:
A new report found that education debt is crowding out many other forms of debt for young adults. Student loans accounted for 36.8 percent of the total debt load for consumers ages 20 to 29 in 2014, up from the 12.9 percent reported in 2005, reported The Post’s Jonnelle Marte.
A separate report from the Pew Research Center found: “The biggest increase in student loan borrowing over the past 20 years happened among affluent families. Middle- to high-income families saw the biggest jump in the share of college graduates who borrowed to pay for school.”
So for last week’s Color of Money Question I asked: What do you think of the rise in education loans? I asked the question particularly in light of the Pew survey that found more affluent families taking on student loan debt.
“Regarding ‘a sharp increase in student borrowing among graduates with highly educated parents,’ this is not terribly surprising,” wrote David H. Narum of Minneapolis. “We baby boomers were undoubtedly the most educated generation in America’s history as we moved into adulthood. Having experienced the benefits of a college education, we feel a very strong compulsion to offer the same opportunity to our children — no matter what the cost! Sadly, as a group, we have also proven to be the most consumer-oriented generation in America’s history. My wife and I marvel at acquaintances who lament having to borrow money to send their kids to college, while they enjoy oversized homes, big boats, always new cars and maybe a vacation home to boot!”
Rick Ross of Brockport, N.Y., wrote: “Families need to assess affordability for their students when choosing a college. The first step is identifying colleges that meet the respective students’ academic and financial objectives, then going through the financial aid process. Families need to remove the emotion and make a sound financial decision once they receive all the financial aid info for their student.”
“I find it appalling that the cost of a college education continues to rise, faster than inflation and unabated,” wrote Anita Ducca of Rockville, Md. “Rather than give more loans, a better solution is to reduce what students have to pay in the first instance.”
Katrina M. Owens, who teaches in Leesburg, Va., had some good advice. She wrote: “As a technology education teacher and one of those individuals with student loan debt as I head into my middle years (40 years old), I wish someone had mentioned to me — ‘You don’t need to go to college to get a high-paying job!’ One of the misconceptions is that everyone needs a college education right away, i.e., right after high school. But many young people can graduate from high school, go to a technical school or community college for two years (much lower cost of education), become certified in a high-demand field (health care, information systems, etc.), and then become employed. Many employers will pay-match or even pay entirely for their employees to further their education while working. This is something that I try to express to my students and parents: Look for alternate ways to get that excellent career without breaking the bank. Just my two cents.”
Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C., 20071, or firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to www.postbusiness.com.