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Market Turbulence:
Stay Buckled In, Keep Buying

Fed in Front…
With inflation still in focus as the Federal Reserve continues its campaign to rein in raging post-pandemic price pressures, the impact of tariffs are top of mind for market participants. Widely regarded by economists as inflationary, tariffs may influence the Fed’s decisions on interest rate policy. After embarking on an historic rate-hiking cycle, the Fed began lowering rates back down as price pressures have abated and inflation has crept closer to the their stated target of 2% yearly price climbs. However, during recent meetings, the Fed has cited the possible implementation of tariffs as one reason for pausing its rate reduction campaign while they await further data, keeping rates at an elevated level.

Stay or Go
Markets, perhaps above all else, are eagerly awaiting further reductions to interest rates. Economic events that delay rate cuts have had negative impacts on markets. In the wake of announced plans to implement broad tariffs on primary US trading partners, markets have reacted swiftly and abruptly to the downside. Stocks are currently near their lowest levels of the last four months, Losing all of their post-election gains with a sudden sharp decline of as much as 7% in just two weeks. With so much volatility in such a short time, many investors may be wondering if the current white water market conditions are an indication of things to come over the upcoming months or years. Some may be considering hitting pause on investing, or even getting out of the market completely.

Long Haul
It may be appropriate for long-term investors to keep in mind that depressed stock prices in the near to medium term can be attractive buying opportunities. Having a long-term time horizon can allow time for markets to recover from near-term losses, with shares purchased at lower price levels having the potential for outsized appreciation as compared to shares bought at higher levels. Therefore, for the long-term retirement investor, sticking with an established plan of buying stocks on a regularly recurring schedule may be the best option, even in the midst of market turmoil.

Lock In…
Making stock purchases at regular intervals, especially as frequently as every month or week, can reduce the chances of buying at a market peak. Making a one-time allocation at a market peak can require a longer holding period before the investor’s allocation recoups losses. Conversely, an investor that makes regularly recurring allocations may make purchases at peaks as well as downturns. Shares purchased at lower levels can reduce the average cost of the investment. This approach, often called dollar cost averaging, can smooth out the prices that investors pay, setting them up for higher gains in the long run. Therefore, even in the face of high market volatility, long-term retirement investors should stay buckled in, keep making regular allocations, and avoid hitting the eject button. Liquidating stocks and trying to wait for a good time to get back in may only result in incurred opportunity costs.

March 6, 2025

Markets Demystified is published on the first Wednesday of each quarter, and explores how stock market investing can relate to personal finance.

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