Can a Sell-Off Be a Good Thing?Kevin Douglas
Just ten days ago, all three major stock indexes in the U.S.—Dow Jones, NASDAQ, and S&P 500—experienced significant losses as the result of sell-offs. Things seem to be on a downward path financially. But is a sell-off automatically a bad thing? Not if you know what to do.
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Reasons for the Sell-Off
The Federal Reserve has been discussing the possibility of raising interest rates this week. Several officials had been making ”unofficial” comments to this effect recently, which is likely what triggered the sell-off. Investors wanted to get rid of their stocks before the potential rate hike. Unfortunately, when selling starts to happen en masse, it can, and did, trigger a sharp decline in market prices.
The Dow lost nearly 400 points, the largest single drop since June 24th, the day after the UK’s Brexit vote, and the numbers for the week were the worst they’ve been since January. Meanwhile, the S&P 500 dropped by nearly 2.5%, also its biggest single-day loss since Brexit. NASDAQ went down even further, falling 135 points.
Finding Opportunities in a Sell-Off
While many investors are panicking in the wake of the September 9 market plunges, some experts suggest that this type of perceived disaster can actually be an opportunity in disguise for those who are more interested in long-term investments.
For one thing, since the drop was in anticipation of a rate hike, it’s believed that recovery will occur quickly. In other words, stocks that are otherwise very attractive can be purchased at significantly lower prices—right before they take off again, netting buyers a tidy profit.
The Value of Gold Investments
If you’re looking for an investment with less risk, one that still has opportunity for growth, then sell-offs are also a great time to invest in assets such as gold and silver. Gold has gone down in value slightly in the last month or so, making it cheaper to put your money into. But with the instability of the markets, as well as the world economy in general, it can be expected to increase again soon.
Stocks go up and down frequently, and even experts have a hard time pinpointing with accuracy which ones will pay out well over time. Gold on the other hand, while it can fluctuate a bit in the short run, tends to remain stable and even increase over the course of years.
Particularly if you have an IRA/401(k), and are trying to save up enough money to retire on, gold is one of your best options. As we saw with the 2008 financial collapse, stocks can plummet without warning, decimating the nest egg you’ve been building for decades, and leaving you without options.
Gold, however, is a physical asset that maintains its buying power over time. In fact, it tends to go up during times of market turmoil. So particularly if you buy when it’s low, gold will accumulate value over the years. Then by the time you’re ready to retire, your nest egg will be waiting for you.
If you’re a short-term investor, then a major sell-off like the one last week can spell disaster. However, if you’re focused on the long term, then it can be a great opportunity to put your money into something solid, with real growth potential, and take steps to secure your future.