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Inflation and Omicron Are Weighing on Markets. Here's What to Keep in Mind

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As the U.S. stock market is whipped by rising inflation and the new omicron covid-19 variant, investors may be wondering what to do with their money.

Many experts have a simple answer: nothing.

On Tuesday, stocks slid for the second day in a row after yet another indicator showed rising inflation. The November producer price index, which measures wholesale prices, rose 9.6% on the year, a record pace and faster than economists anticipated.

The S&P 500 slumped more than 1% and the tech-heavy Nasdaq fell 1.73%. The Dow fell about 100 points after initially opening higher.

In recent weeks, markets have gyrated on fears of the omicron variant as well. Initially, stocks dipped as the new variant took hold and later regained lost ground when data showed that the strain leads to milder illness than other forms.

While volatility can be troubling for investors, experts caution against any hasty selling when markets fall. In addition, slumping stock prices can be a prime buying opportunity that investors should take advantage of.

Volatility is the norm

All investors should accept market volatility — which is relatively common — as a normal part of the process of investing and the best way to outrun inflation, said certified financial planner Brad Lineberger, president of Carlsbad, California-based Seaside Wealth Management.

"Embrace the volatility, because it's why investors are getting paid to own stocks," he said.

This means investors should stay calm even through extreme movements. Even though stocks always move up and down, long-term market returns are still based on the same things: dividend yields, earnings growth and change in valuation, according to Zach Abrams, a CFP and manager of wealth management at Shaker Heights, Ohio-based Capital Advisors.


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Movements up and down can also be a good time to review your asset allocation. If you're worried about a big drop, you could rotate part of your portfolio into some less-risky stocks to protect from a potential market correction, which is a drop of more than 10%.

Volatility can present opportunities

When stocks fall, it can also be opportunities to buy more and set yourself up for future gains, according to Abrams.

This is because when stocks fall from recent highs, they're trading at a discount and will likely rebound at some point.

Continuing to put money in the market when it's down as opposed to selling is a great way to make sure you don't miss out on a rebound. Data shows that selling when the market goes down can take you out of the game for some of the strongest rebounds.

For example, if you missed the best 20 days in the S&P 500 over the last 20 years, your average annual return would shrink to 0.1% from the 6% you'd have earned if you'd stayed the course.

And, even with the market's recent downturn, stocks have had a strong performance this year. Through Monday's close, the S&P 500 is up 24% year to date.

Be prepared for emergencies

Of course, even if you know that stock market volatility can benefit you in the long run, financial advisors still recommend having a cash emergency fund on hand so that you can make it through a market meltdown without selling.

If the stock market falls, it's better to spend the money in your emergency fund than sell assets at a loss that can't be recouped, according to Tony Zabiegala, chief operations officer and senior wealth advisor at Strategic Wealth Partners, an Independence, Ohio-based firm.

This also keeps stock investments in the game for big turn arounds, which generally come shortly after market corrections or even smaller dips.

For example, an investor would have only needed three months to six months of living expenses in an emergency fund to avoid taking losses during the March 2020 meltdown, said Lineberger at Seaside Wealth Management.

This approach would have also kept investments in the market for the record-breaking rally stocks enjoyed after the pandemic slump.

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