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Published: May 02, 2022 6 min read

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April was a bad month for the stock market.

The S&P 500, a common benchmark used to measure how stocks are doing overall, fell 8.8% in April while the Dow Jones Industrial Average declined by nearly 5%. It marks the worst monthly performance for both indexes since March 2020 when the COVID-19 pandemic hit the U.S. The Nasdaq Composite also dived 13% in April, marking the index's worst monthly performance since October 2008.

None of that means you should panic — and it certainly doesn't mean you should rush to change your investing strategy.

"Markets go up and down and investing is a long-term undertaking," says Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab. "This is part of the cycle of economic growth."

Still, that doesn't make the current state of the stock market any less stressful. Here's what you need to know, and how you can best prepare for the future.

Why are stocks down recently?

Sky-high inflation and the Fed's aggressive rate hike plan have investors fearful.

The inflation rate is increasing at its fastest pace since the early 1980s as prices increase for everything from cars to food to gas. The Federal Reserve kept interest rates near zero since the COVID-19 pandemic started, but then it hiked its benchmark interest rate in March for the first time since 2018 amid rising prices. The Fed is poised to lift it by half a percentage point this week.

Raising short-term interest rates is a tool the Fed uses to fight inflation, since high interest rates curb businesses' and consumers' abilities to borrow and spend money. But that constrained spending also tends to crimp prices for financial assets, like stocks and cryptocurrency, and it can worry investors about the outlook of financial markets.

On top of inflation concerns, some major technology companies took a hit to their earnings during the first quarter of 2022. Netflix reported a loss of 200,000 subscribers during the first quarter of the year — the first decline in paid users for the company in more than a decade. Amazon also reported slowing growth and rising costs in its first quarter. Meanwhile Apple's earnings beat expectations, but the company has warned of current challenges that could hurt sales, including supply chain constraints. As a result, the stock prices of these popular investments suffered.

The stock market has also seen recent volatility in the wake of the war in Ukraine.

What's next for the stock market?

On Sunday, Ryan Detrick, chief market strategist at LPL Financial, said in a tweet that this is the third worst start to a year ever for the S&P 500. But, he added, when looking at the 10 worst starts to a year for the index, data shows that the rest of the year tends to come in better than average.

Still, with the Fed expected to hike interest rates, should you be positioning your investment portfolio for a recession? Not according to Mark Haefele, chief investment officer at UBS Global Wealth Management, who wrote in a research note on Monday that UBS' view remains that the right investing strategy is to position for inflation rather than a recession.

"Our base case is that inflation falls from current levels but remains above pre-pandemic ranges," Haefele wrote. "We expect growth in 2022 to be slower than last year, but not tip over into recession."

What should investors do now?

There are inevitably going to be good and bad months — and both by their nature come with increased volatility, Heather Winston, a certified financial planner and director of financial planning and advice at Principal Financial Group, told Money via email. But she says investors should stay focused on their plan and not simply change course because of the most recent headlines.

"Time is one of the strongest determinants of long-term success so attempting to time decision-making based on short term movements isn’t advised," Winston says.

However, it's never a bad time to make sure your investing strategy fits your risk tolerance.

Financial experts recommend having a mix of stocks, bonds and cash, with the allocation to each depending that risk tolerance, as well as your goals and specific financial situation.

Considering your time horizon is crucial, Williams says. Money you invest in the stock market should be money you won't need for the next three to four years. It's important to have some cash or shorter-term high-quality bonds so you have access to money you may need soon, like if you have a child going to college. But if you're investing for retirement or something that's 10 or more years out, a struggling stock market could be a buying opportunity, he adds.

Plus if you're worried, you can consider taking risk out of your portfolio by pulling some money out of more speculative assets like cryptocurrency, Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, recently told Money.

Fixed income investors may actually see some opportunity in the current environment, like in investment-grade corporate bonds, Jones added.

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