Wednesday, November 28, 2007

Market Turmoil - Is it Keeping You Awake At Night?

Friday was a rally, Monday a sell off, Tuesday another up day - makes your head spin. Volatility is back in 2007 and back in a big way. If you got used to the slow but progressively higher trending of the market in recent years - the current market is definitely anything but directional. So is the roller coaster ride giving you sleepless nights?

If you are concerned about the market, consider these points

- Time Horizon: Stocks have tended to return on average about 8-10% annually over the long run. If you are investing for the long haul - forget about it! I mean periodically evaluate your asset allocation and rebalance as necessary but don't worry about the short-term market turmoil.

- Panic Selling: When you panic and become desperate - you make bad decisions. Don't sell in a panic. Remember why you bought something and as long as the rationale is valid - stick with it. I believe in the innovation and market capitalization of Google (GOOG) and even though the stock recently got hammered - I am sticking with it. If I owned Countrywide shares - I would be rethinking my decision. Sometimes it makes sense to sell a loser but selling in fear is never wise.

- Crisis Management: If a plan does not work in a crisis - it does not work. If the market fluctuations are not sitting well with you, evaluate your investment philosophy. Some will contest that the market is behaving normally and if you want safe and boring seek bonds, CDs and treasuries. Whatever your investment philosophy - it needs to take into account various "what if" scenarios. If the market drops 20% tomorrow - can you deal with that situation? It can happen and if you are not comfortable with that scenario - you need to consider less volatile options. Learn more about asset allocation at Smart

Investing lesson - use the current market schizophrenia to your advantage. Learn what works for you, what does not and create a portfolio that lets you sleep at night.

Subscribe to Investing Lessons RSS Feed or Get Email Updates


No comments: