
Specialist Meric Greenbaum works at his post on the floor of the New York Stock Exchange on Oct. 10. Stocks are extending their slump on Wall Street, led by drops in big technology companies, as rising bond yields draw investors out of stocks. (Richard Drew/AP)
The U.S. stock market went nuts on Wednesday.
The Dow Jones Industrial Average was down 3.1 percent, or 832 points. It was the third-worst point decline in history.
The Standard & Poor’s 500-stock index was down 3.3 percent, its longest losing streak in two years.
The Nasdaq dropped 4.1 percent.
What’s fueling these drops?
Investors are worried about rising interest rates following Federal Reserve rate increases.
“Higher
rates tend to moderate economic growth and make borrowing more
expensive for the U.S. government as well as businesses and consumers,” reported The Washington Post’s Taylor Telford.
Mortgage rates reached 5 percent on Wednesday, the first time since 2011.
And the average credit card rate spiked to an all-time high of 17.07 percent, according to CreditCards.com.
“Among
the 100 cards that CreditCards.com evaluates each week, 61 have
increased rates in tandem with the Fed,” reported Kelly Dilworth for
CreditCards.com.
Things also went crazy because the stock market has long been overdue for a correction, experts have been warning.
Steve Goldberg, an investment adviser in the District, said investors have been spoiled.
“It’s
been almost 10 years since the last bear market, and most people have
forgotten just how devastating bear markets can be,” he wrote for Kiplinger this week. “The 2007-09 bear market saw the S&P 500 plunge 55.3 percent — the biggest loss since the Great Depression.”
Goldberg offers some advice for how to put a day of stock market losses in perspective.
“I’m
not suggesting that you jettison your stocks,” he said. “But I do think
it’s time to lighten up a bit on U.S. growth stocks — especially some
of the giant tech names that are trading at extremely high multiples of
earnings and sales.”
So what should you do if the market continues to dive?
Check your fear factor.
“The first thing to do is check the current risk of the portfolio,” certified financial planner Alexander G. Koury told TheStreet.com’s Taylor Nicole Rogers.
“This will help the investor determine what would be the worst case
scenario if the market were to go into a bear market. That means an
investor will know how much they’re willing to lose of their portfolio,
and they can determine whether or not that is comfortable for them.”
You should also make sure you have money for living expenses so you can weather a down market for a few years.
Certified
financial planner Edward Snyder told Rogers: “If you are taking income
from your portfolio, always be sure you have a couple years' worth of
withdrawals in money market or short term bonds.”
When
you aren’t rich with millions of dollars to spare, having experts tell
you that you shouldn’t panic when the stock market suddenly drops can be
infuriating. Of course you’re concerned.
As
much as you may want to run far from the market, don’t let your fears
cause you to make short-term moves that can hurt your long-term
financial goals.
Read more:
Color of Money question of the week
Are you worried about the sell-off in the stock market? Send your comments to colorofmoney@washpost.com. Please include your name, city and state. In the subject line, put “Stock Market.”
Live chat today
Let’s talk about your money. I’m live at noon (Eastern time) today to take your personal finance questions.
It’s
also “Testimony Thursday,” so share with me your success stories. Have
you paid off debt? Did you finally reach your emergency fund goal?
To join the live discussion, click this link.
U.S. student loans reach a staggering $1.53 trillion.
For the second quarter of 2018, outstanding student loans hit $1.53 trillion, according to the Federal Reserve.
As I wrote in last week’s newsletter, NeighborWorks America recently released its national housing survey. One of its key findings was the effect student loans have had on homeownership.
Fifty-seven
percent of young adults said they felt burdened by their student loans.
More than 1 in 3 respondents said they had delayed buying a home
because of their debt or they know someone who has done so, according to
the survey results.
I asked readers: Are your student loans keeping you from buying a home?
C. Evans from Virginia
said she has $200,000 in student loans from getting an undergraduate
and advanced degrees. She wrote: “Afford a home? My wages are already
being garnished for defaulted student loans that were not included when I
consolidated my student loans. I was not aware how often my loans were
bought and sold piecemeal to a variety of ‘servicers.’ How could anyone
understand the government’s tangled student loan rules when there were
so many parties involved? Student loan debt is a nightmare. I am about
to turn 65. How can I ever hope to own a home again when I can’t even
afford to retire?
Cynthia Yates from Florida
wrote, "I have tried to purchase a home through USDA but cannot due to
my student loan debt, which is approximately $150,000. I am on the
income driven repayment plan and pay $60 a month and the cost rises each
year. I am 57 years old and single. If I had known my student loan debt
would hinder me, I would never have gone to school.”
Color of Money columns this week
Knowledge isn’t power. The right knowledge is power.
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Have
a question about your finances? Michelle Singletary has a weekly live
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readers. You can also write to Michelle directly by sending an email to
michelle.singletary@washpost.com. Personal responses may not be
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