As everybody knows, China’s stock market recently took quite a tumble. By the time you see this post, anything might have happened, but at the time of this writing, there was a sudden 8% drop in China’s stock market overall value. That’s huge, as it means that most Chinese stocks suddenly dropped 10% or more. China’s Market ceases trading at a 10% drop to stave off panic, so an 8% drop means that most stocks already hit this threshold, an almost unbelievable outcome.
As a single mother, you are likely not an expert in Chinese economics (that’s not an insult, this took everybody by surprise). And if you’ve managed to get your financial house in order and started investing, it’s likely that you’ve watched your investment accounts lose money and you’re not happy about it. That’s the state a lot of Americans are in right now. Here’s what you need to know about China and about how you need to adjust (or not adjust) your investment strategy moving forward.
- China’s Economic Struggles Make Sense. 20 years ago, the bulk of Chinese citizens lived the way they had for thousands of years. In the meantime, massive industrialization has become the norm for most of China. And this means growing pains. A fast-growing market is one that is unlikely to have found real stability, and China is evidence of this. This combined with an aging populus, without a bunch of younger citizens coming behind the buoy the economy, combined with bloated valuations of many economic forces, combined to make China a big target for a stock plunge.
- Market Drops Always Happen. Market drops happen frequently and that’s a fact of life. It’s a trying time for people who are very old (who lose lots of money all of a sudden, without much time to make it back) and those who are deeply invested (millionaires/billionaires). As a single mother, you are likely not a member of either category. Even better, bull and bear markets follow one another in predictable succession. So if you’re invested, don’t pull out now. Just stay the course. It’s likely that you investments (especially if they’re index mutual funds) will end up higher than they were before this recent bust.
- This May Not Be the Time to Invest More. Many people recommend making investments when the market is low, and this makes a lot of sense. Since the essence of investment is “buy low, sell high”, you definitely want to buy stock when it is as low as possible. But since you don’t know how low the market is going to drop, it’s a bit of a guessing game. Like trying to catch a falling knife, you might get lucky and catch it just right, or you might hurt yourself. In most cases, it’s good to wait until the market rebounds a bit, then buy.
Like it said above, stay the course. If you have a good investment plan, as typified by good advice for IRAs and 401(k)s, it will have been built to account for downturns in the market. So just wait and watch your investments come out of this market downturn, just as other downturns have been recovered from in decades and centuries past.
We have been worried about the stock market lately but then I remember that we just need to calm down and put our emotions aside. It’s important not to make any rash decisions when the stock market is behaving like this.