It’s been a brutal stretch for retail traders. Stocks are approaching a bear market. A selloff wiped $200 billion off cryptocurrencies in a single day. And Morgan Stanley found that amateur investors who jumped into the market when lockdowns began in 2020 have lost all their gains.
Several factors are at play, but surging inflation is the biggest culprit. Rising prices prompted the biggest rate hike from the Federal Reserve in 22 years earlier this month, with more to come, and economists are increasingly predicting a recession over the next 12 months. The growing risks have sent markets into a tailspin, with the S&P 500 Index down more than 15% this year and the tech-heavy Nasdaq 100 slumping nearly 25%.
The common rallying cry in down markets over the past few years has been to “buy the dip.” But what happens if the dip keeps dipping?
The companies that embodied “retail mania” last year are suffering. GameStop Corp. is down more than 35% this year, and AMC Entertainment Holdings Inc. has slumped about 55%. The Solactive Roundhill Meme Stock Index, which tracks a basket of stocks favored by individual investors, has plunged by nearly half. So what should you do if you own a sagging meme stock?
If the money you put into memes was small compared to the rest of your portfolio, it might be worth staying put in hopes of a rebound. If you have other stocks that have done very well, if you’ve invested in Apple a while ago or Tesla, maybe you can take some profits and offset some of the capital gains by dumping the meme stock. That’s a good use of a loss.
It’s not just the meme stocks. After powering the market through the depths of the pandemic, big tech names are plunging too, with Netflix Inc. down nearly 70% and Meta Platforms Inc. tumbling about 40% this year.
Experts recommend thinking about why you bought that tech name in the first place. Do you think consumers will still be using these services five or 10 years from now? If you find your portfolio is tilted too far toward tech, she suggests hedging with commodity exposure, like agricultural products or metals.
For crypto investors in a turbulent market, experts recommend using the downward pressure to test your conviction in your coins, and to lean into those you believe have staying power.
Until the macro conditions settle down, the fundamentals of crypto can’t compete. For individuals eyeing a long-term investment, now is an interesting moment to consider the market. If you’re looking for a short-term trade, you’re jumping into a volatile environment.
A year ago, special-purpose acquisition companies, also known as blank-check companies, were all the rage with retail traders. Rather than following the disclosure-heavy IPO process, SPACs raise money from investors first, then look for a private business to merge with.
The De-SPAC Index — which tracks 25 companies that have gone public through a merger with a SPAC — is down more than 50% this year. It is advised that investors pore over whatever financial documents they receive about the SPAC’s merger target.
Mutual Funds & ETFs
Mutual funds and exchange-traded funds are known as some of the safest ways to invest. But what do you do when the entire market is falling? Now is the time to buy, especially funds tracking broad indexes like the S&P 500 or Nasdaq 100. If you look back in history, all the times the market has gone down it bounced back.