When stock markets get shaken, it can pay for investors to be patient

NEW YORK (AP) — When stock markets are as manic as they’ve been recently, it’s natural to want to do something to protect your retirement savings. Historically, though, staying calm has usually been best.

The U.S. stock market has a track record of recovering from every steep drop it’s taken. Whether it’s a global financial crisis, a trade war or a military war, the S&P 500 has so far always recouped its losses to push toward more records. Of course, that can take years, but anyone who moved their 401(k) investments out of stocks risked missing out on the recovery and further gains.

Will that happen again? No one can say for sure, and some things are different this time around. But many professional investors and strategists are sticking with the advice they usually give: As long as it’s money you don’t need soon, which should never be in stocks in the first place, try to be patient and ride out the stock market’s swings, tough as it is.

They gave the same counsel after President Donald Trump unveiled his global tariffs on “Liberation Day” last year, after inflation skyrocketed in 2021 and after COVID crashed the global economy in 2020. Stomaching these kinds of shocks is the price of admission to get the bigger returns that stocks can offer over the long term.

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“Although volatility may feel uncomfortable, could rise from here, and possibly cause a near-term drawdown in stocks, volatility in itself tends to be brief when it reaches more extreme levels,” according to Anthony Saglimbene, chief market strategist at Ameriprise. “And, more often than not, the extreme volatility provides investors with a solid long-term entry point to buy stocks rather than sell.”

War worries

The war in Iran is slowing the global flow of oil and causing extreme swings in markets.

The fighting has halted most of the traffic in the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails on a typical day. That has storage tanks for crude in the region filling up because it has nowhere else to go. And that is pushing oil producers to say they’re cutting their output.

Oil on Monday briefly spiked to nearly $120 per barrel, the highest price since the summer of 2022, on worries that the production problems could last a long time. Some analysts say prices could quickly reach $150 if the strait remains closed.

A long stretch of high oil prices could put the global economy in a worst-case scenario called “stagflation.” That’s what economists call it when growth stagnates yet inflation remains high. It’s a miserable combination that the Federal Reserve and central banks worldwide have no good tools to fix.

Huge swings but not much change

The S&P 500 is only 4.4% below its all-time high, which was set in January, as of Thursday’s close. It feels worse because of how sharply stock prices have swung recently, often hour to hour as well as day to day.

Several times since the start of the Iran war, the Dow Jones Industrial Average has plunged roughly 900 points in the morning only to erase its loss later in the day or come close to it.

This isn’t unusual

The U.S. stock market doesn’t often behave exactly like this, but it has a regular history of falling to steep losses before rising again.

The S&P 500 has seen a decline of at least 10% every year or so. Such drops are common enough that professional investors have a name for them: a “correction.” Often, experts view them as a culling of optimism that could otherwise run overboard and drive stock prices too high.

Should I sell now?

Selling your stocks or moving your 401(k) investments away from stocks and into bonds may offer less chance of seeing huge drops. But getting out of the market would also mean having to figure out the right time to get back in, unless you’re willing to give up any future recovery and gains.

And timing the market correctly is always difficult. Some of the best days in the U.S. stock market’s history have been clustered in among downturns.

Some recoveries take longer than others, but experts often recommend not putting money into stocks that you can’t afford to lose for several years, up to 10. Emergency funds, for things like home repairs or medical bills, should not be invested in stocks.

For those new to investing

Apps on smartphones have made trading easier and cheaper than ever. That’s helped draw in a new generation of investors who may not be used to such wild swings in the market.

But the good news is younger investors often have the gift of time. With decades to go until retirement, they can afford to ride the waves and let their stock portfolios hopefully recover before compounding and eventually growing even bigger. For them, drops in prices may almost be like stocks going on sale.

For those near retirement

Older investors have less time than younger ones for their investments to bounce back.

People who have already retired may want to cut back on spending and withdrawals after sharp market downturns, because bigger withdrawals will remove more potential compounding ability in the future. But even in retirement, some people will need their investments to last 30 years or more.

For those who have to raid their 401(k) now

If you have no other choice, you have no other choice. But selling stocks in your 401(k) account and withdrawing cash packs a double whammy. One, you may have to pay tax, as well as a possible 10% early-withdrawal penalty. Two, a withdrawal means no chance of those investments recovering their losses and growing over time.

A 401(k) loan is possible in some cases, but those come with their own peculiarities and possible penalties.

For those with pensions

You don’t have to pay as much attention to any of this. Defined-benefit pensions, which few U.S. workers still have, mean you’re in line to get a defined payment regardless of what the stock market does.

Some differences this time

When stocks are falling, prices for Treasury bonds and gold often rise as investors move into investments considered safer. That’s why many advisers suggest keeping a diversified portfolio, to help smooth out shocks.

This time around, though, Treasury prices have been hurt by worries about high oil prices and inflation. Gold’s price has also struggled occasionally when yields on Treasury bonds have climbed. That’s because gold, which pays its investors nothing, looks less attractive when Treasurys are paying more in interest.

How long will this last?

No one knows, and don’t let anyone tell you otherwise.

AP Writer Cora Lewis contributed.