What’s a Terrified Investor Supposed To Do?

The Dow Industrial Average is down more than 35% so far this year, with an almost 679 point drop today alone.  There’s not doubt about it, but this market is in the midst of a full-blown panic.

Stocks are down, bonds are down or barely hanging on, oil and gold are down, real estate is down.  So given all the doom and gloom, what’s a shell shocked investor supposed to do?  Here are few tips to help you ride out the current market.

  • Don’t panic. Now is not the time to sell all your stocks.  If you were going to do that, the time was 12 to 18 months ago.  By selling now, you’ll simply lock in what is still a paper loss.
  • Remember your time horizon. If you’re young, this market will provide a great buying opportunity.  If you’re nearing retirement, you may want to follow the next piece of advice.
  • Scale back your equity exposure. Don’t sell everything, but it would be wise to have a little more cash than usual.  We currently have our clients with a lot more cash than usual so we can start buying again when the panic subsides.
  • Review your asset allocation. Some asset classes have gotten hit harder than others.  Now is a great opportunity to reallocate your portfolio without the tax bite you might get under more normal circumstances.
  • Talk to your advisor. If you haven’t spoken to, or heard from, your advisor, now is the time to be proactive and schedule an appointment to review the above items.  You’ll most likely leave that meeting knowing you’re doing everything in your power to minimize the damage of our current situation.

This has undoubtedly been a brutal market that has tested the stomachs of even the most seasoned professionals.  While you may have to make small adjustments to your current portfolio to reflect current circumstances, remember that your investment portfolio is built for the LONG TERM and that, over time, your patience and fortitude will be rewarded.

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Dow Reaches Bear Territory

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.