Deer in Headlights because of Market Volatility?
Fear can get in the way of making rational decisions about your investments. How do you know when to make the next move?
Paralyzed by Stock Market Uncertainty?
Don't let fear get in the way of sound investment decisions.
It's 8:30 am. You've just logged on to your favorite news site and there it is. Red. Not a happy Red. An ugly cold-blood-red dotting the screen, Your 401K? Your IRA? Your nest egg? All RED, the market is down again. Too worried to look further, you turn to the headlines for any sign of hope. Nope. Not much. Unemployment up, retail down. Housing dismal. You wonder if your future will ever include any sort of financial gain.
So how do you react in times like these? For many, a sense of resignation develops, nothing you can do, just hope it recovers in the future. For some, bailing to cash seems like the only safe thing to do. And for the lucky few who were in cash last year, the daily quesiton becomes "when is it time to jump back in?"
First of all, let me clarify. "Waiting it Out" is NOT an investment strategy. Even through the most dismal market cycles, there are strategies that can be applied to your investments. If you don't need your investment money until years from now in retirement, then you can take advantage of the downturns to carefully construct a portfolio that positions you for future cycles. However, if you have experienced a downturn and will need to access your investment funds in the five years, you may not want to take the same risk as in the past.
Even the fixed income markets have been rocky. Bonds that mature at full value may appear on your statements as worth much less. This is an important time to understand the underlying credit quality of any fixed income you hold. Talks of bankruptcies in the banking sector, automotive sector, etc., may call for evaluation of your bonds or bond funds.
So where do you go from here? The first, most proactive step is to remain logical, not emotional about the markets. In my opinion, while the media provides interesting highlights about market activity, much of what is broadcast in one program is quickly refuted in another. The job of the media is to hook viewers to ultimately sell advertising. It makes sense that they might sensationalize a bit to keep you tuned in. Pair information you hear with information you read in analysts company reviews, financial trade publications etc.
Don't be afraid to test the waters. A good strategy is to drip into the market. Want to own GE? Buy some shares now, wait a few months then buy a few more. Chances are with the volatile markets you will average your price of purchase rather than trying to time the highs and lows.
Avoid cocktail party stock talk. If an investment is a good one, you'll be able to access information that will help you make a sound decision. Only people with money to lose should consider gambling on a "tip" that someone gave them at a party.
Above all else, work with a trusted financial advisor to help you navigate through financial decisions that impact you directly. A good advisor will not offer cookie cutter solutions or programs, but instead will customize an investment plan based on your unique situation.
Don't buy in to the doom and gloom. The markets have shown over time that they are resilient and cyclical. Prudent decisions now may reap big rewards in your financial future.
Learn more about the author, Cheri Johnson.
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- stock market
- financial planning