It’s official…we are now 20 percent + off of the market highs set in October of 2007.
In addition, the financial sector is in a tail spin with the Treasury threatening to take over both Fannie Mae and Freddie Mac. Throw near-record oil prices in the mix and the future looks pretty bleak! Finally, the international markets which have been providing stellar returns for most of the last three years are following the U.S. equity markets into the tank.
Given all of this…what is an investor to do?
(1) Sit back, take a deep breath and breath out slowly.
(2) Think about why you are investing…what is the goal…what is your time horizon. If it’s money you really need in 2-3 years, it probably shouldn’t be in the market in the first place. That time frame is too short and the market is too volatile. If your time horizon is longer term, look at your overall asset allocation and adjust as necessary.
(3) Don’t have an asset allocation? Get one! Studies have shown that over 90 percent of your long-term investment return come from asset allocation, not your individual security or mutual fund picks. Need help on learning about asset allocation? Consider picking up the excellent book by asset allocation and passive investment expert Rick Ferri, CFA:
All About Asset Allocation
In addition to being an outstanding investment strategist, Rick is a retired Marine Corps Reserve fighter pilot, lifetime MOAA member and all proceeds from his books go to help wounded warriors.
(4) If your portfolio is outside of your asset allocation…rebalance it…take the bold step and buy stocks when everyone else is fleeing. In other words, buy low. Can stocks go lower? Sure they can…but sticking with a disciplined asset allocation, one that is based on your age, time frame, risk tolerance and when you need the money…is far better than flailing around blindly based on what the “talking heads” on CNBC are spouting to sell the next commercial.
(5) Sit back, take a deep breath, breathe out slowly.
