Cents and Sensibility
Cents and Sensibility
If you invest in stocks, you may have had a bumpy ride over the past year or so. In fact, the numbers haven't been real pretty. Let's take a look at them: Don’t let volatility keep
you out of the market>> The Dow Jones Industrial Average dropped 6.2 percent in 2000, followed by a 7.1 percent decline in 2001. Year-to-date, it's down nearly another 20 percent.
>> The Standard & Poor's 500 index fell 10.1 percent in 2000, then dropped another 13.04 percent in 2001. Year-to-date, it's down another 26.2 percent.
>> The Nasdaq index lost 39.3 percent in 2000, only to fall another 21.1 percent in 2001. Year-to-date, it's down another 32.4 percent.
How should you respond to this type of volatility? To achieve your long term goals, such as a comfortable retirement, you'll need your money to grow. And stocks have historically grown more than any other type of financial asset.
Instead of dropping out of the investment world, consider taking the following steps to manage volatility:
>> 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. This may not lead to sustained periods of tremendous growth, but, over time, you will be better protected from downturns.
>> Don't overreact to temporary setbacks. Different sectors go through periods of ups and downs. For example, the current market environment has been difficult, in general, for technology stocks -- and even for some typically solid blue-chips. Should you sell your holdings in these areas? Before you do, remember the first rule of investing: Buy low and sell high. 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 they're still likely to reward patient investors. "Blue chips" didn't get that designation for nothing. They have long histories of steady earnings.
>> Seek good companies at attractive prices. Try to find those companies whose management is strong and whose products are well positioned for the future. And look for companies that are reasonably priced, as measured by their price-to-earnings ratio and other factors.
>> Look for buying opportunities. Look beyond temporarily depressed price and examine fundamentals, management, products and prospects.
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