THE MOTLEY FOOL

Why’s My Stock Falling?

Q: A stock I bought has fallen, and I see no explanation in the news. What’s up?

– T.G., Billings, Montana A: Individual stocks, like the overall stock market, don’t move in a straight line. Over long periods, the stock market has always risen, but via a jagged line. Individual stocks will also be volatile to some degree, though shares of successful companies rise over the long run and those of less successful businesses falter or fall.

Share prices will rise or fall from day to day due to company news (big profits!), or economic news (a pandemic!), or some other reason, or sometimes no reason at all. Stock prices essentially reflect what investors are willing to buy and sell them for at that moment – and investors’ sentiments can change quickly. Long-term investors needn’t worry about short-term moves. Focus on how confident you are in a company’s prospects and what you think its stock is really worth. The prices that matter most are the price you bought at and the price you eventually sell at.

Q: How costly will health care be when I’m retired?

– P.L., Lawrence, Kansas A: The estimate rises every year. According to Fidelity Investments, an average 65-year-old couple retiring in 2021 will spend about $300,000 on health care in retirement – excluding costs such as long-term care, most dental expenses and over-the-counter drugs. Of course, many of us may end up spending far more or far less. Regardless, that shocking number is a good reminder to plan for significant health care costs in retirement. Beginning at age 65, Medicare is a big help, but even with it, you’ll likely still have out-of-pocket expenses.

Interest Rates Rising?

The Federal Reserve Bank, which is a key influencer of interest rates, has signaled that rates may soon rise, in part to combat inflation. Here’s how higher rates might affect you – in ways good and bad.

For starters, higher rates mean you’ll pay more when you borrow money, such as for a mortgage or a car loan. Credit card interest rates will rise, too – and they’re already rather steep, with average rates charged by cards recently near 16% and many cards charging far more. It’s always smart to pay down debt – and it’s especially important now.

Rising rates also mean that those who are saving money will enjoy more generous interest rates from their various bank accounts, certificates of deposit (CDS), money market accounts and bonds. The prices of existing bonds will likely take a hit because bond buyers will prefer to buy new bonds that carry higher interest rates.

Rising interest rates can put a damper on the stock market’s performance – in part because alternatives to stocks, such as bonds, will look more attractive as rates rise. Also, companies that borrow money by issuing bonds will have to pay more interest on those loans. (We’ve been in a very long period with ultralow interest rates, and the stock market has done very well for much of that time.)