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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Another Bumpy Day

There’s no question that the stock market has been volatile so far this year.  In fact, in the first quarter of 2008, the Dow Jones Industrial Average had 35 days with triple-digit point moves and the S&P 500 had 31 days with a move of more than 1%.

Today’s action was no different.  The day started strong, with a better than expected rise in the GDP of .6%.  The was followed by the expected .25% rate cut by the Federal Reserve.  The end result was that the Dow reached a peak of roughly 13010 at little after two o’clock.  After the Fed cut was absorbed and a few more earnings, reports came out, the Dow closed at 12820.13.  For the day, the Dow  had a range from 12808.98 to 13010.00, for a swing of 201.02 points.

It looks like the Fed will now take a breather from the interest rate cuts that have trimmed a total of 3.25%  off rates since September.

With the summer months, which are generally fairly volatile, fast approaching, prepare for this seesaw up and down motion to happen for a little while longer.

As we always tell clients, as long as your portfolio is allocated the way it should be, although unnerving, these wide fluctuations are not unprecedented, nor are they particularly detrimental to your portfolio.

Hang in there.  This too shall pass.