--- title: 'Stock Market Selloff: What''s Causing All the Volatility, and Should You Buy the Dip?' description: The stock market saw big swings this week when the Fed raised interest rates. Here's how investors should react to the recent volatility. authors: - name: Mallika Mitra role: Contributing Editor url: https://money.com/author/mallika-mitra/ bio: Mallika Mitra is a contributing editor for Money, based in Chicago. She has covered investing and retirement for seven years and her work has appeared in CNBC, Bloomberg, Kiplinger, AARP, Barron’s, Bankrate, The Daily Upside, ETF.com, The Bond Buyer, PLANADVISER, PLANSPONSOR and Investopedia. education: Craig Newmark Graduate School of Journalism at CUNY Kalamazoo College at_money_since: 2020 articles: 395 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Pets - Professional Services - Retirement - Shopping - Taxes - Technology also_seen_in: - CNBC - Bloomberg - Kiplinger - Barron's - Bankrate - WGN-TV - CBS News Radio - This Morning With Gordon Deal - Everyone's Talkin' Money social: - https://twitter.com/mitra_mallika - https://www.linkedin.com/in/mallika-mitra-4577a386/ published: '2022-05-06T17:43:40.000Z' modified: '2024-01-10T17:29:23.000Z' section: Economy and Politics tags: - Markets - News word_count: 895 canonical: https://money.com/stock-market-volatility-selloff/ type: NewsArticle source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![New York Stock Exchange Floor](https://img.money.com/2022/05/News-Market-Selloff.jpg) If you were watching the stock market this week, you likely have whiplash. The tech-heavy Nasdaq Composite dropped 5% Thursday, the index's biggest one-day percentage decline since June 2020. The S&P 500 slid 3.6%, and the Dow Jones Industrial Average, 3.1%. It was a major reversal from Wednesday, when [stocks](https://money.com/how-to-buy-stocks/) rallied and the Dow and S&P 500 — which track the performance of some of the nation's largest companies — saw their biggest daily gains since 2020. When markets do a U-turn, it's easy to panic. But financial experts say market volatility like this is normal. "These types of losses can and will happen when you're invested in equities," says Mychal Campos, head of investing at online investment advice company Betterment. If you're a long-term investor looking for growth in your portfolio, you probably don't have too much to worry about, he adds. Here's what you need to know about this week's stock market swings. The stock market has been [struggling for months](https://money.com/stocks-worst-month-april-investor-tips/) as investors assess what [inflation](https://money.com/inflation-highest-since-1981-gas-prices/) being at a 40-year high — and the [Federal Reserve's response to that inflation](https://money.com/interest-rate-hike-investing-strategy/) — means for the future. When inflation rises, the Fed tends to [hike short-term interest rates](https://money.com/interest-rates-mortgage-credit-card-student-loan/) to fight those [rising prices](https://money.com/inflation-top-concern-america-poll/), because higher interest rates make it more difficult for businesses and consumers to borrow and spend money. On Wednesday, the Fed announced it would raise its benchmark interest rate by a half percentage point, the biggest hike in more than two decades. The move followed a March decision to increase the rate by a quarter percentage point. Looking forward, though, Federal Reserve Chairman Jerome Powell said the Fed isn't "actively considering" going further and raising rates by three-quarters of a percentage point. This seemed to cause investors some relief and the stock market to rally on Wednesday. Thursday was a different story. Investors appeared to show more of their concern over rising interest rates. And while raising rates may help bring down your grocery bill, they do tend to crimp prices for financial assets, like stocks and [cryptocurrency](https://money.com/what-is-cryptocurrency/), as well. ## Should I be nervous about the stock market? Of course, market volatility may make you uneasy if you've invested your hard-earned money in stocks. But the turbulence was somewhat also expected given [how well stocks have been doing recently](https://money.com/stock-trading-hobby-interest-rates/), says Charles Sachs, chief investment officer at Kaufman Rossin Wealth. During the early stages of the pandemic, the stock market hit [record high](https://money.com/stocks-record-highs-what-to-do/) after [record high](https://money.com/investing-tips-stock-market-record-high/), encouraging new investors — many of them [young](https://money.com/investing-clubs-college-high-school/) — to pour their money [into stocks](https://money.com/best-investment-apps/) (and even riskier assets, like crypto). While the stock market kept skyrocketing, experts warned that prices couldn't go up forever. "Markets don't just go one direction," Sachs says. "You need to be embracing volatility when you're investing in the markets." Remember: The average stock market return is around 10% annually in the U.S. But you don't get those returns "like clockwork," Sachs says. In other words, there are up years and there are down years, and if you have a well-diversified portfolio and a strong, long-term investing plan, don't panic. Stick to the plan. ## When the market drops, should I buy the dip? [Buying the dip](https://money.com/buy-the-dip-stock-crypto-strategy/) is one of the internet's favorite investing tips, but experts caution that trying to time the market is risky. Few people are successful in actually predicting when the bottom of a dip is here. A better strategy is dollar-cost averaging, which involves regularly investing a fixed amount of money into the market over time. Like with buying the dip, some of your cash will be held on the sidelines. But instead of waiting for the market to reach the bottom of a dip, you invest the cash at set time periods. For example, instead of saving up $100 monthly and investing it all at once when the market drops, invest that $100 once a month or once a quarter. (If your employer takes a certain percentage of each paycheck to invest in your [401(k)](https://money.com/401k-and-401k-rollover/), you're already dollar-cost averaging.) “Time is one of the best negating tools of risk possible,” Stephen Talley, chief operating officer at Leo Wealth, [previously told Money](https://money.com/buy-the-dip-stock-crypto-strategy/) about this strategy. A major selloff like we saw this week is a good time to revisit your level of risk tolerance. "If this kind of move makes you nervous, just know that these types of moves do happen," Campos says. "If you're uncomfortable with that, you should reduce your allocation to stocks." [Financial advisors](https://money.com/how-to-choose-a-financial-advisor/) recommend that your investment portfolio consist of a mix of stocks, bonds and cash with the allocation to each depending on your financial situation, goals and risk tolerance. Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab, [recently told Money](https://money.com/inverted-yield-curve-recession/) that for the average person with an investment horizon of 10 years or more, an 80% allocation of stocks and stock funds (both U.S. and international) is the most likely path to wealth. In short, it's best to stay the course and remember that [stocks go up over the long haul](https://money.com/stock-market-chart-rolling-returns/). "If you're in it for the long term, you should expect some nice returns," Sachs says. ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/stock-market-volatility-selloff/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Economy and Politics", "item": "https://money.com/economy-and-politics/" }, { "@type": "ListItem", "position": 3, "name": "Stock Market", "item": "https://money.com/stock-market/" }, { "@type": "ListItem", "position": 4, "name": "Stock Market Selloff: What's Causing All the Volatility, and Should You Buy the Dip?" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/stock-market-volatility-selloff/#webpage", "url": "https://money.com/stock-market-volatility-selloff/", "name": "Stock Market Selloff: What's Causing All the Volatility, and Should You Buy the Dip?", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2022-05-06T17:43:40.000Z", "mainEntity": { "@id": "https://money.com/stock-market-volatility-selloff/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/stock-market-volatility-selloff/#breadcrumb" }, "dateModified": "2024-01-10T17:29:23.000Z" }, { "@type": "NewsArticle", "headline": "Stock Market Selloff: What's Causing All the Volatility, and Should You Buy the Dip?", "articleSection": "Economy and Politics", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2022/05/News-Market-Selloff.jpg", "width": 2880, "height": 1920, "caption": "News-Market-Selloff" } ], "author": [ { "@type": "Person", "name": "Mallika Mitra", "url": "https://money.com/author/mallika-mitra/", "@id": "https://money.com/author/mallika-mitra/#author", "description": "Mallika Mitra is a contributing editor for Money, based in Chicago. 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