May has been a volatile month for the U.S. stock market, with Wall Street investors expressing concern over inflation and how the Federal Reserve might respond to combat it. While the major market indexes appeared to have rebounded some on Thursday, antsy investors remain on guard after last week's news that consumer prices in April rose at the fastest rate since the Great Recession.
"As an investor, inflation is really tricky because what happens with inflation is it erodes the value of your bonds — your safer investment, not safe, but safer," CBS News business analyst Jill Schlesinger said Thursday on CBSN. But that doesn't mean abandoning your bond positions, she added.
"What it means is that you've got to be careful about what types of bonds you own. Maybe shorter to intermediate term, meaning no [long-term] 30-year bonds. And maybe when you look at your stock portfolio, you've got to make sure that it is perfectly diversified across lots of different types of stocks. And what we actually know over the long term about inflation and even rising interest rates is that it can hurt in the short term, but over the long term, if you stick to your diversified portfolio, you're going to be okay."
Schlesinger also reminded CBSN viewers that the stock market and the economy "can move in different directions," so keep your stock positions in line with your risk tolerance as the markets zigzag during the post-pandemic recovery. Some investors are bracing for a market correction, which is when a stock index declines by 10% or more from its most recent peak.
"I have to tell you, unfortunately for you, the price of admission to being an investor is that you have to endure corrections. You have to endure bear markets which are 20% drops," Schlesinger said, adding, "The idea that a 10% correction is coming — it's not rocket science: Of course it's coming. But you are not trying to time the market."
Trying to precisely time the market — when to get in, when to get out, when to get in again — is something that few if any investors have ever succeeded doing over time.
"Again, I sound like pretty much of a broken record here, but if that diversified portfolio is set up correctly in the beginning, you should not have to worry about the market dropping 10 or 20%," Schlesinger said, adding, "You're a long-term investor, and I know that you made that pinky swear with yourself not to panic at the bottom and not to pile in when the stock market is rising."