Blip or downturn? What the stock market meltdown means for your money

The turbulence that roiled investors mid week continued into Thursday, with U.S. indices see-sawing between gains and losses amid a global stock market rout.

This followed an 800-point decline by the Dow Jones Industrial Average on Wednesday, the index’s third-worst point plunge in history, and a four-percentage drop by the Nasdaq, the steepest percentage decline since the Brexit referendum in June 2016.

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All of this happened without an apparent reason. Puzzled analysts have been pointing to growing concern about rising interest rates and trade tensions between the U.S. and China, but there was no headline or economic data release on Wednesday they could point to as a possible trigger for the selloff.

So what is happening and what does it mean for small investors whose retirement money is tied up in the stock market?

Stock market watchers have very different takes on what’s going on.

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“We think this is just the start of a downward trend,” Murray Gunn of Elliott Wave International told Global News via telephone.

“When things like this happen, it’s a sign that the social mood is transitioning from positive to negative,” he added.

Gunn sees this as the beginning of a downward trend that could last several months and perhaps, he says, “a couple of years.”

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Brian Belski, chief investment strategist at BMO Capital Markets, vehemently disagrees with today’s pessimists.

“Stop with the fear fest — this is just a pullback,” he told Global News via email.

Companies’ earnings growth remains “robust and well above historical averages,” he continued via phone.

The fact that the stock market has been going up for the past nine years doesn’t mean that it’s about to head south, he added.

“Stocks go down because something has fundamentally changed,” he said. And so far, he added, this hasn’t been the case.

In his 30 years in the business, Belski says he has never seen so many doom-and-gloom forecasts about the next market crash.

Belski believes the market has a long way to go still before it runs out of steam. In 2010 he predicted U.S. stocks were headed for 20 to 25 years of growth, and that forecast, he says, still stands today.

And now that Washington and Ottawa have a new trade agreement, he added, Canadian stocks are “ready for liftoff” as well.

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What does this mean for your wallet?

With analysts opinions diverging so much, you’d be excused for feeling confused.

But small investors shouldn’t act based on what they hear from analysts, said Walter Updegrave, editor of RealDealRetirement.com.

In general, he said, “you shouldn’t get caught up in these short-term convulsions.”

This year alone, he noted, the Dow has twice plunged more than 1,000 points in a single trading session.

But dumping stocks after taking a horrified look at your investment portfolio is about the worst thing you could do, financial experts warned.

In most cases, all you need to do is take a deep breath and let it pass.

“Stay the course,” said John De Goey, portfolio manager at Industrial Alliance Securities.

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Still, stock plunges may be a good opportunity for some investors to test how risk-tolerant they actually are, Updegrave said.

“Some people feel very comfortable with risk when the market is doing well,” he said. But that may be because “they are just not fully aware of the risk they are taking.”

If you lose sleep whenever stocks tank, you might consider upping the percentage of your investments in lower-risk securities like bonds.

The idea, though, should be to set a new course for the long term — not that you’ll go back to stocks whenever the market recovers.

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To figure out what mix of stocks and bonds is right for you, Updegrave suggests using something like Vanguard’s investor questionnaire. Based on your answers to 11 multiple-choice questions, he tool will recommend a portfolio composition that seems appropriate for you. It will also show you how your suggested portfolio has performed in the past compared to others.

In addition to comfort level, you should also consider your investment goal and time frame, Updegrave said.

For example, if you’re young and saving for retirement, you might need to hold a higher percentage of stocks that you feel entirely comfortable with, otherwise your investment might not grow enough to be able to provide a decent living in old age.

Bu whatever re-balancing you make should be performed in a “calm, rational way,” Updegrave said.

“If it’s just a panicked reaction where you’re thinking, ‘I just need to get into some safe haven until later,’ then, I’d say, you need to really re-evaluate your investment strategy — or lack thereof.”