With it’s close today at at 11,344.33, the Dow Jones Industrial Average is now officially off 20% from its peak on October 9, 2007. At a 20% loss, that means that this is now a bear market.
A wise man once told me that bear markets are always preceded by and followed by gains. Bear markets are never fun since I don’t know too many people who like to lose money. The problem right now is that our last bear market of 2000 – 2003, one of the longer ones on record by the way, is still fresh in people’s minds and that, coupled with the rising cost of gasoline and food, is causing more anxiety than the average bear market.
What’s a poor, frightened investor supposed to do? Well, a number of things come to mind:
- Review your asset allocation to make sure it’s still in line with your goals. If not, you may be able to re-allocate it with less of a tax consequence by ‘harvesting’ your losses to offset gains.
- Consider alternative investments that have little or no correlation to the overall market. Have you noticed recently that, each time oil rises, the market falls? By having a portion (and let me emphasize this again – A PORTION) of your portfolio dedicated to commodities, foreign exchange, real estate and other ‘alternative investments’ you can insulate your portfolio, reduce its volatility and even improve your portfolio’s performance over the long run.
- Look for buying opportunities. If you liked a stock or mutual fund 7 months ago and you still think you want to own it, it’s currently on sale so you may want to buy now.
- DON’T PANIC. Bear markets do end and you want to make sure that you don’t panic, bail out at the bottom, just to watch the market turn around a short time later.
The current stock market conditions are not much fun for anybody. The important thing is to keep focused, don’t panic and be ready to pounce on opportunities that may arise.