Markets In Turmoil: Investments Down Across The Board

As of July 2024, the US stock market is still performing well, with the S&P 500 reaching new highs in June and on course for its fifth quarterly gain in six quarters. Technology stocks continue to lead the market's rally, with investors anticipating Federal Reserve interest rate cuts this year. However, it's important to note that not all sectors are performing equally well. While some sectors, like utilities, financials, and consumer discretionary stocks, have made gains in 2024, they still trail the leading tech-related sectors. Additionally, the interest-rate-sensitive real estate sector is the only S&P 500 sector in negative territory year-to-date. When it comes to individual stocks, large-cap stocks continue to dominate, with the S&P 500 topping 5000 in February. On the other hand, smaller stocks have faced more pressure due to the Fed's interest rate policy. Overall, the general outlook for the S&P 500 remains strong, with solid earnings forecasts for the rest of the year.

High-yield savings accounts

• My Banking Direct: 5.55% APY
• UFB Direct: 5.25% APY
• Bread Savings: 5.15% APY
• Bask Bank: 5.10% APY
• Popular Direct: 5.05% APY
• CIBC U.S.: 5.01% APY
• Salem Five Direct: 5.01% APY
• LendingClub: 5.00% APY
• Varo: 3.00% APY (5.00% if certain requirements are met)
• Emergency savings: You'll have easy access to your funds in a pinch.
• Savings for major purchases: You can earn interest on your savings until you need to make a large purchase.
• Short-term financial goals: You can stash your cash for a specific goal.

When choosing a high-yield savings account, look for accounts with high interest rates and low service charges. You also want to make sure there is no monthly fee or that you can easily meet the requirements to waive the fee.

Pros

• Earn higher rates than other savings accounts.
• Are federally insured (up to $250,000 per depositor).
• Can usually be opened online.

Cons

• May require a higher minimum opening balance than regular savings accounts.
• May be online-only, so face-to-face customer service may not be an option.

Certificates of deposit

CDs are similar to savings or money market accounts in that they allow you to put money away for a specific goal, such as a down payment on a house, a new car, or a vacation. However, unlike savings and money market accounts, CDs require one initial deposit that stays in the account until its maturity date, whether that is six months or five years. In return for giving up access to your funds, CDs generally pay higher interest rates.

CDs are available at banks, credit unions, and brokerages, and the best rates are usually found at online banks and credit unions. When opening a CD, you will need to consider the interest rate, term length, principal, and financial institution. The interest rate on a CD is usually fixed, but there are also variable-rate CDs that could earn a higher return if rates rise. The term length is the amount of time that you agree to leave your funds deposited, typically ranging from 3 months to 10 years. The principal is the amount that you agree to deposit when you open the CD, and the financial institution will set factors such as early withdrawal penalties.

While CDs offer a safe and predictable option for savers, there are some downsides to consider. Your money is locked into the investment, and if you need to withdraw your funds early, you will likely have to pay a penalty. Additionally, CDs typically earn less than stocks and bonds over time, and there is a risk that inflation will grow faster than your money, lowering your real returns.

Bonds

The Federal Reserve's sustained campaign of interest rate hikes in 2022 and 2023 negatively affected bond prices. However, it's important to note that rising interest rates cannot last forever, and bond prices are likely to recover once rates go lower. Bond prices can also be influenced by other economic factors, such as inflation, supply chain issues, and geopolitical crises.

There are different types of bonds, such as government and corporate bonds, which offer varying levels of risk and return. Government bonds are considered virtually risk-free because they are backed by the full faith and credit of the government. On the other hand, corporate bonds are not backed by the government, making them a riskier option. High-yield corporate bonds, sometimes known as junk bonds, can be even riskier and may take on a risk/return profile that more closely resembles stocks.

When investing in bonds, it's essential to consider your risk tolerance, investment goals, and time horizon. Bonds are generally suitable for conservative investors seeking a fixed income with less volatility in their portfolio.

Mutual funds

When it comes to the performance of mutual funds, it's important to evaluate them over a longer time horizon. While some funds may experience short-term gains or losses, the impact of market volatility tends to decrease over time. For example, instances of negative returns in mutual funds due to short-term market disturbances are significantly reduced after holding them for 3-4 years. This highlights the importance of adopting a long-term perspective when investing in mutual funds.

Currently, the market is experiencing a downturn, and mutual funds are not exempt from this trend. It is natural for investors to feel concerned about their investments during such periods. However, it is crucial to avoid making hasty decisions, such as redeeming your investments prematurely. Mutual funds, especially equity mutual funds, are market-linked, and their performance is influenced by the fluctuations of the stock market. As a result, there is a potential for loss when the market declines.

To make informed decisions about your mutual fund investments, it's recommended to compare the performance of your chosen fund with similar funds in the same category. This allows you to assess how your fund is performing relative to its peers. Additionally, diversifying your portfolio across different asset classes, such as equity, bond, and money market funds, can help mitigate risks and balance out potential losses.

It's worth noting that different types of mutual funds carry varying levels of risk and return potential. Stock mutual funds, also known as equity mutual funds, offer higher potential rewards but come with higher risks. On the other hand, bond mutual funds provide a more stable rate of return by investing in government and corporate debt, albeit with lower potential returns. Money market mutual funds are considered one of the safest options, offering modest returns while protecting retirement savings.

In summary, while it's challenging to provide a definitive statement on the performance of all mutual funds, it's safe to assume that many are experiencing downturns alongside the broader market. As an investor, it's important to remain calm, adopt a long-term perspective, and make informed decisions based on thorough research and comparisons within the same fund category. Diversification and a well-balanced portfolio can help weather market volatility and improve your investment outcomes over time.

Index funds

When deciding whether to invest in index funds, it is important to consider the following:

• Research and analyse different index funds to understand their investment focus, such as company size, geography, business sector, and market opportunities.
• Compare the costs of different index funds, including investment minimums, account minimums, expense ratios, and tax-cost ratios.
• Decide where to buy your index funds, considering factors such as fund selection, convenience, trading costs, and impact investing options.
• Monitor your index funds' performance over time to ensure they are meeting your expectations and make any necessary adjustments.

While index funds have historically delivered attractive returns, it is important to remember that past performance does not guarantee future results. Additionally, while index funds tend to be less risky than individual stocks, there is still a possibility of losing money. Therefore, it is crucial to carefully consider your investment goals, risk tolerance, and time horizon before investing.

Frequently asked questions