If youre an investor, you may have been disappointed with how the markets have been reacting this summer to the news of high oil prices and other short-term events. Nonetheless, your long-term financial goals dont have to be jeopardized by these losses if you know how to respond to them.
Here are a few moves to consider:
Stick to your investment strategy. Its almost always a bad idea to make long-term investment decisions in response to short-term market fluctuations. If you have built a diversified portfolio of quality investments, youre better off just staying the course during a market decline. (Keep in mind, though, that diversification, by itself, cannot guarantee or protect against loss.) If these investments were suitable for you before the market drop, theyll still be appropriate when the market turns around.
Dont try to time the market. It would be great if you could know when the market had reached its low or high points, or which days would be losers and which ones winners. If you hadthat foresight, you could always jump in and jump out of the market at the right times. Unfortunately, no one can make those predictions with any accuracy. And those people who do try to time the market in this manner end up jumping out at the wrong times and missing both short- and long-term market rallies. By staying invested through market ups and downs, you can make progress toward your longterm goals.
Look for buying opportunities. By definition, a market decline means that stock prices are lower which means you may find some good buying opportunities. Of course, youll want to know if the stocks price is low because of the effects of the broad-based market decline or because of other factors specific to the stock, such as poor management, non-competitive products or a decline in the industry to which it belongs.
While making these moves can help you get past the market decline, it doesnt mean that a severe price drop cant affect you. If you need money to pay for an unexpected cost, such as a major car repair, youll likely take a hit if you have to sell stocks when the market has fallen substantialaly. But you can avoid this problem by putting three to six months worth of living expenses in an emergency fund, preferably in a cash or cash equivalent account.
Nobody likes to see big declines in the stock market. But if youre a long-term investor, youve built an emergency fund and youve rebalanced your portfolio to fit your risk tolerance, youll be in a much better position to withstand these market drops and youll be well prepared for an eventual recovery.
Aaron Cole, A.A.M.S.
Edward Jones
Representative
6500 FM 2100, Suite 285
Crosby, Tx. 77532
281-328-7863
