CHARLOTTE, N.C. — The Federal Reserve did something it hasn't done in 28 years: It raised the key interest rate by 0.75 percentage points in response to soaring inflation and volatile financial markets.
The stock market has officially entered bear territory, meaning stocks are down 20% or more from their most recent all-time high.
Is now a good time to invest in the stock market, even though it's down?
Yes, now is a good time to invest in the stock market, even though it's down.
WHAT WE FOUND
First a quick vocabulary lesson:
- A bear market is when stocks decline at least 20% or more from recent peaks.
- A bull market is when stocks rise at least 20% from recent bear market lows and reach record benchmark highs, typically lasting for months or even years.
Inflation is up 8.6% year-over-year which means virtually everything we buy from groceries to gas to clothes all cost more.
Chris Hobart, CEO of Hobart Wealth, said one of the ways to dampen down the impact of inflation over time is for the Fed to raise rates.
"The Fed does this to kind of slow down the sloppy money that's out there," Hobart said.
The sloppy money he's referring to is when the Fed and Congress flooded the market with cash during the early days of the pandemic, which helped cause inflation.
The bear market is also indicated by the value of many stocks dropping more than 20% since the beginning of the year.
"You want to buy low and sell high, too many people do the opposite," Ted Rossman, senior industry analyst for Bankrate.com & Creditcards.com, said.
Experts told WCNC Charlotte you have to take a long-term view.
"[The bear market is] a good thing... I'm getting this company that was producing XYZ, but I'm getting it at a reduced rate, and that's what you have to look at when you look at stocks," Hobart said.
Hobart said, historically, the market goes up over time, so investing in the market gives you a better chance for greater earnings potential than not investing.
"I actually think it could be a phenomenal time to invest, as long as you have a long time horizon, and as long as this is meeting your risk assessment," Rossman said. "I think it's one of those kinds of ironic things that people love a sale but a down market is basically a sale and that's when everybody runs for the exit... The fact is, if you're young, especially if you're 20 [or] 30... every dollar you invest now could be worth $15 or $20 by the time you retire. We just don't want to put money at risk that you can't afford to lose."
Rossman said if you can afford to sock more money away into the market for more than five or 10 years, now is the time to do so.
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