Cents and Sensibility
Cents and Sensibility
IF you invest in stocks, you might be reluctant to open your newspaper these days. And not many people would blame you. Don’t let volatility
keep you out of
the marketAfter all, look what has happened in just more than a year: The S&P 500 index has fallen 26.9 percent from its peak. The Nasdaq index, containing many tech stocks, has fallen 62.4 percent. And the Dow Jones industrial average flirted with bear-market status yesterday, closing at 9,389.48. At 19.9 percent off its high, the index just avoided joining the Nasdaq and S&P on the bearish side of the 20 percent benchmark.
How should you respond to this? Instead of dropping out of the investment world, consider these steps:
>> Give diversification a chance to succeed. Diversification is essential to investment success. In a well-diversified portfolio, some of your holdings will be going up; at the same time, others may be going down. By investing your money in several different areas -- stocks, bonds, mutual funds, annuities, etc. -- you will be better protected from downturns that affect just one area.
>> Don't overreact to temporary setbacks. Expect your investments to go through periods of ups and downs. For example, the current market environment has been difficult. If your stocks are way down, think twice before you sell them and take a big loss. High-quality companies still have bright futures -- and are likely to reward patient investors.
>> Look for great buying opportunities. When the market is down, you can find good stocks at attractive prices. Look beyond a stock's temporarily depressed price and examine its fundamentals (earnings, sales, assets, liabilities, cash flow, rate of return on equity), management, products, and prospects. If the signs look promising, you might have an excellent buying opportunity.
By following these suggestions, you won't eliminate volatility, but you may be able to take a lot of the sting out of it.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com