When the economy enters a recession, revenues and employment decline, and stock prices tend to fall as companies struggle to remain profitable. This is a great opportunity for investors to buy stocks at a lower price. If you have a moderate asset allocation of 65% stocks and 35% bonds, it is important to maintain that goal regardless of what the market does. The Dow Jones Industrial Average has not yet entered a bear market, but it is in correction.
To determine the performance of the S&P 500, you must look at its performance over a specific period. The stock market has had its worst start to the year in recent history and could get worse as fears of recession increase. Despite this uncertainty, there is no imminent recession due to strong GDP growth and earnings. To reduce volatility, investors should reinvest dividends even if the value of their shares decreases.
When the share price is lower, you should buy more shares and fewer when the price is higher. Some sectors, such as consumer discretion or information technology, may experience rapid growth during the recovery phase of a recession. The strategy of averaging the cost in dollars allows you to invest the same amount in dollars consistently, whether the market is trending up or down. Funds such as S&P 500 and Dow Jones Industrial Average fell by 29% and 27%, respectively, during the Great Recession bear market, while S&P 500 fell by more than 50%.
Stock prices can fluctuate significantly from month to month.