Cents and Sensibility
Cents and Sensibility
DISAPPOINTING investment results in 2000 may be sending some people out of the market and onto the sidelines -- where they'll wait for things to "get better" before jumping back in. But is it a good idea to take a timeout from investing? Not really. No time to be on
investment sidelinesIf you're investing for the long term, you always have to be looking far beyond today's headlines. And no matter what the market as a whole is doing, you can always find areas that offer strong potential for growth. When the market is down, you may be able to pick up high-quality stocks at good prices.
And by staying invested, you won't miss out on any market upturns. Remember, the market can rise just as quickly as it can fall. If you're off to the side, you could be left behind quickly when the market takes off. There's ample historical evidence that it could do just that: Over long periods of time, stocks have typically trended up, overcoming the down years and bear markets.
Still, there's no question that the market's performance in 2000 was shaky enough to give even experienced investors a case of the jitters. The Dow Jones Industrial Average was down 6.2 percent for the year -- its worst year since 1981 and its first losing year since 1990. But the Dow's slide was dwarfed by the drop in the technology-heavy Nasdaq composite index, which tumbled 39.3 percent for the year -- its worst year ever.
If you do want to stay in the market, but you don't want to be unnecessarily victimized by drops of these magnitudes, your most important defense is diversification -- the distribution of your investment dollars over a variety of asset classes, including income, growth, growth-and-income, aggressive growth, cash and cash equivalents. Diversifi-cation can help protect you against downturns affecting just one or two market sectors. Also, you'll increase the likelihood that, at any given time, some parts of your portfolio will do well.
Your individual asset allocation mix will depend on several factors, including your risk tolerance, age, objectives and financial resources. Once a financial professional has helped you established the asset allocation mix for your portfolio, you'll need to monitor it, and make adjustments as you encounter changes in your life.
Even with a carefully prepared asset allocation plan, there's no guarantee you will avoid losses, especially in the short term. But if you've chosen quality investments, and you have the patience to stick with them, you should do a lot better in the market than 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