How to minimize stock market risk

Welcome back. In today's Dollars and Cents, the big airlines are reporting disappointing quarterly earnings and lowering their forecast for the year. Southwest, Delta, United and American Airlines all placing the blame on higher costs for fuel. Though rain this morning, the Nasdaq dropped by about 600 points as the tech stocks take a hit this morning on continuing concerns about spending by the AI companies in particular. That has been weighing heavily on those stocks, causing quite a bit of volatility there. As we take a live look at the markets, the Dow, the Nasdaq's down about 600, the S&P 500's losing about 100 points. That's about one and a third percent for the S&P 500. So the S&P and NASDAQ dropping significantly percentage-wise. There's a live look at the Dow, down about 200 points, but that's only about a third of a percent. The stock market can be risky, but playing it too safe could also put your retirement savings at risk. This morning, we are looking at how to manage market volatility, protect your money and build long-term wealth without letting fear drive your investment decisions. For Insight, we welcome Angela Lee, professor of professional practice of finance and economics at Columbia Business School. Good morning. Thank you for joining us. Thank you for having me, Pam. I've been doing this a long time and I have heard it said many, many times, fear and greed move the markets. How do we avoid falling into those two categories? So I have two pieces of advice for everybody. The first is diversify, diversify, diversify. And the second thing is to let fear not fall into your investing strategy. Every time you're looking at the market, zoom out. Don't look at the last day or week or month. Look at the last five years or 10 years. Those huge dips start to become much smaller when you do that. Yeah, that's a good idea. Look over time because sometimes you think day to day, Oh, my gosh, my my account lost a huge amount yesterday, but then maybe for the year it's up. Talk about we talk a lot about age by age investing, which is really important in building that long term wealth. I mean, early on, typically, you know, we're encouraged to invest in growth stocks, maybe taking on more risk. what age do you say that that's kind of a good like in general time to kind of you know you want to play on AI stocks or things that are doing well investing in those kinds of stocks so the great news is that a lot of the big financial firms like Fidelity or Vanguard they have these funds that are based off retirement age so if you say I'm going to retire in 2060 you can invest in the Fidelity Freedom 2060 fund and what it literally does is it puts your portfolio into the percentage of stocks and bonds that you should have based on your age. Because if you're 20, you have 45 years to ride out the market before you have to retire. If you're 50, you only have 15. So these companies actually do that work for you. And they're using the rule of 120. And the rule of 120 is you take 120 minus your age. That's the percentage of your portfolio you should have in stocks. Yeah, I love those. 90%. Yeah, I love those accounts. As you mentioned, you can see Fidelity, Vanguard, all the big investment companies, they have their 2030, 2035, 2050, like you said. So that's a good thing for people to think about. At what age do you say, because sometimes we want to make that adjustment ourselves, maybe to move it more into bonds. Right now, interest rates are high. What age do you suggest typically starting to adjust retirement accounts at age or maybe time away from retirement? So I would say once a year, you should be adjusting overall percentage in stocks, percentage in bonds. And again, you can just do that using the rule of 120, saying what percentage of your portfolio should be stocks and bonds. And you talked before about investing in AI companies. People are very afraid of missing out on NVIDIA growth, the good news is if you're invested in a broad-based S&P 500 ETF, you're already invested in NVIDIA. This week, it's 8% in NVIDIA. So don't worry about missing out on those hot stocks. Yeah, I think you bring up a good point. We often hear from financial advisors talking about, don't try to time the markets. Leave that to the professionals. What best advice do you have for people starting out? Because I know it's really, it's so important. People think, especially right now, everything's so expensive. And I know younger people starting out in their job, they feel like I don't have any extra money to put away and retirement so far away. What kinds of percentages are you, do you recommend, or is it okay to like at least $20 a paycheck is okay? So the target that people should be shooting for is 20, 30, 50, 50% is based off of just like daily essentials like rent and food and then 30% can be on wants right and then 20% should be in savings that is the goal I recognize that's hard and so if you can't do 20% now then get up to that number but just because you can't hit 20% doesn't mean you can't put aside even $10 per paycheck but you need to be saving for the future yeah so that 20% is the goal. And when you talk about savings, that can be a savings account for rainy day or and that would include that retirement account, hopefully, if your company offers the 401k, right? For sure. We tell people to think about short term and long term, long term focus on that rule of 120 short term. You can put into a high yield savings account because what you don't want to do is have to sell a stock at a bad time to pay for a flat tire. Right. Right. Oh, gosh. Which can be, all of the car expenses can be so expensive. All right. Thank you. Great advice. Angela Lee from Columbia Business School. Thank you so much for joining us and for that information.